The third quarter remained difficult in many respects, but the global economy showed marked progress emerging from the economic contraction we experienced in the spring. Faster than expected improvement led economic forecasts to be revised upward and is in part behind some of the strength that equity markets witnessed in the period. That said, output for the full year in GDP terms will remain at depressed levels and show the worst year-over-year contraction in decades.
The global economic recovery has now slowed as further waves of coronavirus infections and their impact are felt. In addition fiscal support on offer to businesses and households alike is coming to an end, which could have a negative impact on markets.
So what are we currently focusing on in terms of the future path? Some of the waymarks we are monitoring include: a different timeline for the successful development of an effective vaccine; the longevity of fiscal support for economies; and the outcome of the US election.
Rightly much attention is being paid to the upcoming election and it is a key focus of our investors and clients. With just weeks to run, the campaign is intensifying but the outcomes aren't yet certain. At the time of writing, most polls suggest a lead in national and several swing states in favor of former Vice President Joe Biden. If he wins there will by definition be a break with the status quo, but ultimately we suggest caution in extrapolating that platform policy measures will be enacted, in particular if there remains a split congress. We will update you as our views evolve but the notion that the market would be ‘surprised’ by this outcome is exaggerated in our view and the key impacts will take months if not years to manifest.
Thomas Leys, Investment Manager, Fixed Income Research, discusses data centre company bonds in the context of carbon emissions. Thomas describes the environmental impact of the amount of data we consume as a global population, and compares it to other industries such as transportation. He describes how the industry has gained efficiencies over the last decade, and how some companies are moving to renewable energy sources as a way to address political and investor concerns regarding their environmental impact.
Lucas Tan, Senior Analyst, APAC Real Estate Investment Research, discusses the increasing need for last mile fulfilment centres in Australian cities. Historic changes to town planning approaches by local government in Australia led to a bottleneck around delivering goods and services. However, changes are being made to unwind these inefficiencies to benefit residents in urbanised areas. Until recently, the logistics market has been dominated by private investors and owner occupiers, which has been less well understood by institutional investors. Lucas argues that investors should consider this asset class as it offers the potential for increased yields and capital appreciation.
Carolina Martinez and Alistair Veitch, Co-Chairs of our Emerging Markets Asset Class Steering Group within Multi-Asset Solutions, give a holistic view of the markets they consider. The response to, and consequent impact of COVID-19 has led to divergent performance of China and South Korea versus Latin American countries, which have suffered a great deal from this pandemic. Differing fiscal and monetary responses, dictated by the financial health of each country, have also led to differing vulnerabilities, and therefore performances within these markets. As a result, the team's focus is on understanding the differentiated outcomes, and expressing granular views within portfolios.
Finally, Eimear McKeown, Justin Kariya, Gerry Fowler, members of our FX Asset Class Steering Group within Multi-Asset Solutions, give their views on the outlook for the US dollar and other major currencies following a period of significant volatility. Our expectation of low yields over the long term mean that on balance our view is that the USD continues to remain weak, although the trend down is likely to be less pronounced from here. The low rate environment in the US benefits other currencies such as the Japanese Yen as well as certain emerging market currencies where valuations appear to be attractive, although the team is sensitive to the structural fragility of some of these economies.