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DIALOGUE@FF:

Global Markets Quarterly

Summary

Explore The latest thought leadership and dialogue shaping the narratives on emerging and frontier markets, economics, global trends and more

 Global Markets Performance Q3:2020

|Frederick Fyle Group

Research

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The global economy may be in the deepest recession for decades but – with signs that the worst could be over despite sporadic resurgences in COVID-19 infection rates – financial markets have been swift to discount both a recovery and a return to normality.

The beginning of the third quarter, saw a decline in Eurozone equities, with economic data confirming the downturn in activity during Q2 and some countries seeing COVID-19 infection rates escalate. In the USA, equities gained despite unnerving economic data releases, such as the extent of the economies contraction in Q2. In addition, the US dollar weakened versus other countries. UK equities fell over the period as fears around a second wave of infections weighed on investor sentiment.  In response, the government tightened lockdown measures and postponed all easing plans.

Asia (excluding Japan) and emerging market equities enjoyed strong gains, aided by the US dollar weakness. Further, signs of a recovery in global economic activity was a major driver of increased market optimism. US dollar weakness and continued recovery in economic data, amid ongoing monetary and fiscal support, boosted sentiment.

Global stock markets continued their upward trajectory in August while global government bonds fell. The S&P 500 experienced its best August since 1986 as US stocks edged higher. The Federal Reserve confirmed its readiness to offer further support, while increasing its flexibility to do so by adjusting how it targets inflation. Shares in the UK and Eurozone gained as risk appetite recovered generally due to the improving global growth outlook.

Generally, the third quarter of 2020 emphasized the benefits of geographic diversification. Asian equities returned over 10% and are the best-performing equity region year to date, up over 5%. Meanwhile, UK equities fell 3% and are down 20% year to date. European equities also lagged the rest of the world, with returns of 2% and -7% for the quarter and year to date respectively. US equities delivered nearly 9% over the quarter and over 5% this year.

Asia’s strong performance has been strongly aided by China’s remarkable success in containing the virus. In the US, the summer started with a sharp rise in infections which have since declined. In addition, the race for the White House and control of the Senate has gained even more importance than usual in light of the pandemic.