Investment update for October 2020
Heightened uncertainty around the global resurgence of COVID-19 infections, the upcoming US presidential election and pre-election stimulus deadlock, dominated investor sentiment in October. Global equity markets were mixed as a result, with early gains falling by month end. Newly instated lockdown measures in advanced economies have contributed to stalling global growth while strong data from China was reflected in emerging market returns. Emerging markets and global small caps continued to outperform developed markets for the month.
In the US, political uncertainty and rising COVID-19 infections remained the headline. The move to reopen businesses and resume activities have contributed to the recovery in both consumption and investment components of the GDP. Despite a sizeable rebound, the annual GDP still contracted by 3.5%. The unemployment rate and jobless claims remain well above pre-pandemic levels. In the lead up to the presidential election, US markets reacted positively to the polls indicating a Democrat clean sweep. Stalled fiscal stimulus negotiations also contributed to economic contraction.
Europe’s second wave of COVID-19 infections increased over the month, resulting in many countries, including the UK, to reinstate national containment measures. The UK’s furlough scheme was extended past the original 31 October end date, reflecting continued fiscal support being required. The ECB left its monetary policy on hold as consumer confidence fell and the Eurozone unemployment rate rose to 8.3%. After a brief stall to negotiations, Brexit talks recommenced during the month. Commentary suggests that progress has been made towards the trade deal with a target to finalise talks by year end. UK and European equity markets performed poorly over the month.
China’s economy continued its rebound with import and export data showing signs of growth over the month. The US/China trade tensions extended to Australia with China initially banning coal imports before announcing further bans on imports including wine, wheat, lobsters and other commodities. Although current impact to Australian GDP is minimal, a Democratic US election win could prove favourable to a resolution to trade issues.
Australia’s COVID-19 infection rate remained low over the month with the decline in Victoria’s second-wave cases resulting in the first stage in reopening of retail and further easing on travel and hospitality restrictions. The RBA maintained monetary policy for the month. Tackling high unemployment rates remains a high priority, and further measures to support job creation and economic recovery were announced during the first week of November.
Government bonds performed strongly over the month particularly in the US while bond yields declined in Australia and Europe. The AUD depreciated against major currencies, most notably when compared against the Japanese Yen. Commodity prices were volatile over the month reflecting China/Australia trade tensions. The oil price was the worst performer while gold finished slightly negative.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
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