CIO Monthly View with Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management
Markets continued to recover in May as the impact of global shutdown became apparent in the economic data released over the month. In the US, the jobless rate tripled to 14.7% the highest level since the 1930s whilst retail sales slumped, falling 16% over the month. In the UK, the Bank of England forecast the weakest economic growth in more than three hundred years with the economy expected to shrink by 14% despite an expected rebound in the second half of the year.
Equity markets rallied in May as investors were encouraged by the easing of enforced lockdowns around the world whilst COVID19 infection rates continued to fall. Japanese equities were the strongest performing region over the month supported by their strong balance sheets. Pacific equities lagged, weighed down by the growing spat between China and the US over the future of Hong Kong. Value stocks continued to lag the market despite trading at the widest valuation discount to growth stocks since the height of the dotcom bubble in 2000, we think that they offer an exceptional opportunity at these levels.
Fixed Income markets rallied as governments and central banks continued to provide further stimulus. In a breakthrough for Europe, German and French leaders, with the European Commission, agreed in principle to a new EUR750 billion fund. This will create EU bonds, financed by European-wide taxes for the first time.
Gold continued to rally as the Federal Reserve and the Bank of England discussed the prospect of further reducing interest rates into negative territory. Within diversifying assets, our exposure to macro funds generated strong returns as they continue to exploit the dislocations in interest rate markets after the extraordinary moves in March.
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