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11th December 2020
Market CommentaryStayInTouchDec 2020 Issue 21

Graham BentleyGraham Bentley

Sir Walter Scott's The Bride of Tremaine poetically describes a November sky as 'chill and drear'. Little change in over 200 years apparently, although back then he would have been fortunate to own an accurate clock, let alone have the need to set it back an hour and endure even drearier late afternoons. And as for lockdowns...

From an investor's viewpoint however, the month was anything but dismal, and stands to demonstrate the point that I make regularly (if not ad nauseam) in these commentaries - trying to time the market is, in technical parlance, a mug's game. 

Over the month, global equity markets have accelerated following announcements from Pfizer and Moderna amongst others, proclaiming the efficacy of their COVID vaccines. Most importantly, regulators' 'fast-tracking' of approvals and relatively straightforward distribution logistics mean our most vulnerable populations will have access to vaccines before the turn of the year. While investors were taking in the news, and those in cash deciding on their course of action, in only 8 trading days the FTSE 100 rose over 14%. US and Japanese markets advanced to a lesser extent in sterling terms as the Pound gained over 3% versus the Dollar and the Yen - remember a strong pound means it takes more dollars etc to buy one - but still rose in sterling value by over 7% and 11% respectively.

President-elect Joe Biden is getting on with organising his transition team before taking office in January, despite Donald Trump's legal team's increasingly desperate attempts to cling on to the trappings of office. The market may seem surprisingly sanguine on that subject, yet there is little historic evidence that US equities fare any better under Republican administrations than they do when Democrats are in charge. There is certainly hope however that Mr Biden and his team will have a rather less bellicose relationship with China - the world's second largest economy - than Mr Trump had; the now receding threat of a trade war provides another positive driver for global markets, not just in the US.

As if to underline the importance of a rapprochement, the Chinese have reported that factory activity in October accelerated at the fastest pace in over 10 years, with new jobs being created at the fastest rate since 2011. This is may appear remarkable given COVID's impact on global trade, but reflects a strong improvement in China's domestic demand, and ironically perhaps, a rather less punitive impact of the pandemic.

Here at home, the change in consumers' behaviour has inflicted collateral damage on the High Street. The collapse of Arcadia, and the threat to familiar brands like Dorothy Perkins and Top Shop, also sounds the death knell for Debenhams, already severely weakened by store closures in lockdown and for whom Arcadia is the biggest supplier. COVID has exposed Arcadia's management as having been largely ignorant of the long-term trend towards online retailing. It remains to be seen how much of the business might survive, sadly along with an uncertain future for tens of thousands of employees.

Off the High Street at least, there may be cause for comfort. A conclusion to Brexit negotiations is close, with 'only' fishing rights and adoption of the EU Human rights Act being seen as barriers to completion. Since fishing contributes very little to the UK economy, versus the impact of a No Deal outcome, it remains an essentially political issue. Coastal fishing communities will no doubt have a different perspective, however. Meanwhile UK new mortgage offers reported in November reached a 13-year high; lockdowns may have instigated a flight from big cities to more space for the money in the countryside. Another positive saw net lending to consumers fall £590m in October and a total of £15bn since March, the steepest drop on record. This was mainly down to people paying off credit cards - a sensible first step in any financial plan given the exorbitant rates prevailing.

Avellemy clients in the 'medium risk' category will have seen their portfolios rise by around 7% during the month, and all risk levels should be more than 3% in positive territory for the year so far, significantly ahead of both cash deposits and inflation. So, despite the world being turned upside down, a decision to stick with it has (as always) proved to be the right one for long-term investors. 

That only leaves me to wish you and yours as merry a Christmas as you're allowed, as we look forward to a hopefully more positive 2021, and to unashamedly borrow again from Sir Walter Scott:

So! now, the danger dared at last,
Look back, and smile at perils past!

Graham Bentley

Chairman, Avellemy

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