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Recovery to proceed apace despite rising risks to emerging markets

An update from Capital Economics' Global Economics Outlook

Irongate Book Club - a recommendation from James Scott-Hopkins, Managing Director. "I have just finished an excellent book by Thomas Levenson, Money for Nothing – The South Sea Bubble and the Invention of Modern Capitalism. Crises often accelerate change. I heartily recommend it".

We are pleased to share our news regarding a recent addition to the Irongate team.

The key factor driving headline inflation rates over the coming months will be a rise in energy inflation. The increase and future increases in Brent Crude may add 1.5% to average headline inflation to Developed Markets in the next quarter. However energy inflation is set to fall back and supply shortages should ease as spending patterns normalise.

Two major events have taken place in the world’s two largest economies over the past week. The first is the passage of President Biden’s $1.9trn stimulus bill in the US. The second is the meeting of the National People’s Congress in Beijing. Taken together, these have the potential to reshape the narrative around the post-pandemic recovery.

The following is an abridged version of an article written by Lawrence Burns, a Partner with Baillie Gifford whose firm run the Scottish Mortgage and Monks Investment trusts.

While it is still early days, the ingredients for a sustained pick-up in inflation over the next few years seem to be falling into place in the US. It is a different picture in other developed economies; indeed, we still think that medium-term inflation risks are much lower in the euro-zone and Japan.

“The Roaring Twenties will not be the result of a post COVID recovery, although that will be part of it, but one derived from the extraordinary creation of wealth and productivity enhancement that the current technological wave is delivering.”

The Sarasin Food and Agriculture Opportunities Fund has seen a steady recovery since the low point last March. This reflects the attraction of many fundamental growth opportunities in the food economy and has been both broad based and not so dependent on the rerating or exuberance seen for example in the US technology sector.

It is at this time of year that fund managers take stock and I thought I would share some of the thoughts from the managers we use both within the stable of St. James's Place fund managers as well as those from the Bespoke offering available through St. James's Place Stockbrokers, Rowan Dartington.

World trade surpasses pre-virus level

Solving the world's biggest problems by partnering with nature. An article by Baillie Gifford one of the managers available through St. James's Place Stockbrokers.

Electric vehicles and their makers have had a rough ride. But, love them or hate them, electric cars are here to stay. Can Ferrari, the world’s leading luxury carmaker, become a serious challenger in the electric car market? And will they remain a long-term holding in the Scottish Mortgage portfolio? An article by Baillie Gifford one of the managers available through St. James's Place Stockbrokers

Pandemics fast forward history - by Michael Power, Chief Strategist

The news about vaccines has led us to believe that restrictions will be removed in advanced economies in Q2 next year, paving the way for a steeper recovery to a more normal level of activity.

Sands Capital’s Sunil Thakor, co-manager of the Global Growth fund, and Chris Ralph, Chief Global Strategist at St. James’s Place, discuss how to select growth stocks, when to sell them, and how growing companies should think about cashflow.

Warren Buffett CEO of Berkshire Hathaway, probably the most successful investor of his generation, has always maintained that you should not invest into any company you do not understand.

The announcement by Pfizer of positive trials for an effective vaccine has lifted markets which just confirms how important confidence is in lifting the world out of this depression and providing hope for the future.

The further rise in world trade volumes in August was unsurprising given that there has been a strong recovery in the demand for imported goods. Given the experience so far, we would expect world trade to continue holding up relatively well even if the new wave of lockdowns in Europe are severe enough to cause their overall economic recoveries to go into reverse.

This week we would like to highlight these two key calls: China’s economic recovery will prove stronger and more resilient than many expect, amid signs that consumer spending is now picking up and lending support to what has so far been an investment-driven rebound in activity. Despite near-term uncertainty, the narrative for financial markets in the coming couple of years will include “risky” assets outperforming “safe” ones as the global economy improves plus rising inflation expectations, led by the US.

The following is an abridged version of an interview by Hamish Douglass of Magellan Asset Management with Kevin Johnson, President & CEO of Starbucks discussing how they have fared so far in 2020. (Magellan run the SJP International Equity fund and is a major shareholder of Starbucks.)

The experience from second virus waves in Australia, New Zealand and Japan is that consumer spending falls even if governments don’t impose major restrictions. However, there are three key reasons why second waves may be less damaging to economic activity than previous ones.

In this week’s article we explore the macroeconomic consequences of previous pandemics. We outline how pandemics have typically influenced key economic variables such as GDP, wages and interest rates. We look at the factors that have influenced the magnitude of those economic effects, including the scale and severity of the pandemic itself and explore how economic policymakers have responded to previous pandemics. And finally outline the key lessons that are likely to apply to the Covid-19 pandemic.

The dislocations in financial markets caused by the coronavirus shock have now largely disappeared and, while there may be further bouts of volatility as the global economy continues to recover (such as yesterday’s sell-off in US tech stocks), our view remains that central bank backstops will prevent a repeat of the March market panic. This view underpins our forecast that risky assets will gain further ground.

We view the potential for a systemic bank failure due to the COVID-19 economic shock as low. Today’s banks are more resilient than in the past given their robust capital positions and lower risk profile, not to mention supportive liquidity operations provided by central banks.

The swift and significant response of the Bank of England to the Coronavirus crisis has prevented a financial crisis, but we think the Bank will need to do much more than the markets currently expect to get the economy back on track.

Heading into 2020, who could have known that the global community would face a pandemic causing a coincident drop in both demand and the oil price?

The development of a vaccine would represent a breakthrough in the public health battle against Covid-19, but it would not necessarily transform the immediate economic outlook.‍

The team at Magellan Asset Management, manager of the International Equity fund and co-manager of the Global Growth fund, have provided us with a note on intergenerational equity, a concept that says each generation should be fair to future generations, as a result of the COVID-19 pandemic.

Global Overview – The initial rapid pick-up in economic activity has offered encouragement after an almost unprecedented recession. But households and firms will remain in cautious mode, preventing a full V-shaped recovery.

The thoughts and outlook from Orchard Street Investment Management, manager of the St. James's Place Property Fund. 10 July 2020.

This week St. James’s Place published their Value Assessment which is designed to determine that clients are receiving value for money and forms one of the annual requirements of the Financial Conduct Authority. It looks at seven areas of assessment but the most important is probably performance against benchmarks after charges over the last five years.

After the initial storm the wind in our global sails seems to have dropped away as we enter a period of uncertainty as to how rapidly the economy will recover.

We continue to think that central bank backstops make a re-run of the March panic in financial markets unlikely, a key assumption underpinning our view that “risky” assets will recover further ground in the second half of 2020.

If social distancing were practised for many years, either because it was enforced by governments or fears of future waves of the virus prompted people to implement it anyway, then most of the recent changes to the way we spend, socialise and work will probably be in place for many years too. But if the virus and social distancing fade out, then most of the behavioural changes that require people to stay one or two metres apart will be reversed quickly. Right now it may feel like that old world has disappeared forever. But the historical evidence suggests that after previous significant events, such as pandemics, plagues and terrorist attacks, people reverted to their previous behaviours often within three to six months.

Jeremy Grantham, founder and Long-Term Investment Strategist at GMO, talks to Chris Ralph, Chief Global Strategist at St. James's Place, about emerging market value, widening inequality, and oil's fading prominence.

Dan O'Keefe of Artisan Partners , managers of the St.James’s Place Global and Global Managed funds updates us on the positioning of his fund and outlook. March 2020

The market today loves companies that seem to promise steady, reliable growth, says Dan O’Keefe. He’s open to ideas that might be just a bit more complicated.

Investors usually make one of two mistakes; they either overreact or underreact to news.

Equity and credit markets have experienced a round-trip trade over 4Q18 and 1Q19.

The secret lies in the role of the government and the Chinese mindset. With or without a trade deal, there is trade in China.

There are now over one thousand cryptocurrencies and barely a day goes by without another headline.

The Sustainable & Responsible Equity fund, managed by the Global Opportunities team at London-based investment firm Impax Asset Management, is focused on the long-term growth opportunity arising from the transition to a more sustainable economy.


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