Market Perspectives July 2020

03 July 2020

Welcome to the July edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 500KB].

Financial markets seem to be largely ignoring risks of a second wave of COVID-19 and looking to a quick, V-shaped, recovery. As some markets near their highs, such optimism may be misplaced. While asset values appear elevated, volatility remains high. As November’s US election nears, volatility might climb. Equity markets are one area where American election fears could be felt first. Election uncertainty is likely to increasingly influence sentiment and volatility. We expect healthcare, technology, financial and energy stocks to be particularly affected as more election details emerge.

Companies potentially affected by climate-change initiatives may also profit, or come under pressure from, the election. With the EC’s Green Deal targeting a sustainable pandemic recovery, we examine potential investment opportunities that may arise from moves to a carbon neutral world.

In fixed income, rarely have investor concerns about low interest rates appeared more justified.  Banks are usually particularly exposed to such risks. While some banks will struggle, especially if debt defaults are higher than the market expects, the sector looks far more resilient than it was a decade ago.

Allocating more to private markets may be one way to diversify away some of the pandemic risks found in public markets. For instance, if the global financial crisis is any guide, deep valuation discounts on secondary assets, caused by the COVID-19 outbreak, may soon offer more attractive opportunities in that segment.

Jean-Damien Marie and Andre Portelli
Co-Heads of Investment, Private Bank

Pricing for election risk

Equities have been very resilient in the last couple of months, shrugging off worsening macroeconomic data. The consensus continues to expect a quick, V-shaped, recovery. We are more circumspect. Indeed, in addition to the pandemic, the US presidential election is likely to soon become another source of potential volatility.


More resilient bank bonds, but not all is equal

The pandemic is putting many companies finances under strain, increasing the chances of debt defaults. While this event will be different from the credit crisis, it might have parallels. That said, the quality of bonds issued by banks and their capital buffers means that they look more resilient. Selection is likely to be key in spotting attractive opportunities.


Oil rebalances as gold glistens

Sentiment towards oil is improving, as quarantine easing aids demand and more production cuts are agreed. Meanwhile, the gold price seems underpinned by substantial policy responses to the effects of the pandemic, low interest rates and geopolitical tensions. But with a vaccine to COVID-19 seemingly at least a year away, what is the outlook for both commodities?


Secondary market opportunity?

How long can private market assets miss the sharp, downward, repricing seen in public financial markets amid the pandemic? Valuations will suffer. Secondary assets are likely to be one area that may offer attractive opportunities for brave investors from a liquidity shock in the not too distant future.


Greening the EU stimulus plan

Some governments want to stimulate growth as part of their post-pandemic recovery to help deliver their nationally determined climate commitments. More companies also seem to be integrating sustainability factors into their growth plans. Some mandated to do so by the state. Will the post-pandemic world also be greener?


Striking a balance

Trading and investing are often thought of as two very different approaches. Strangely, a trader’s shorter term mindset may have uses for investors. With financial market volatility likely to be elevated for some time, how can investors strike the appropriate balance between short-term and long-term impulses in seeking to provide their desired performance?


Multi-asset portfolio allocation

Investors are digesting what fresh outbreaks of COVID-19 infections in the US and Europe and a long likely period of sub-trend growth mean for financial markets. In fixed income, we favour developed market government bonds. Dovish policy should underpin developed market equities and gold. We are cautious on high yield bond prospects, with default rates rising.


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