Investment market update: November 2020
Updated: Dec 18, 2020
Global stock markets continued to be affected by Covid-19, but there was good news mixed among the negative.
While the International Monetary Fund (IMF) warned the global economic recovery was ‘losing momentum’, markets rallied during the month based on the news that a vaccine was on the way. Pfizer was the first to announce a vaccine, closely followed by AstraZeneca. While it could be some time until a vaccine allows us to return to normal, it’s a light at the end of the tunnel.
Throughout much of November, the UK was in a second lockdown, fuelling fears of a double-dip recession.
In line with these concerns, the Covid-19 furlough scheme was extended until March 2021 to protect jobs and businesses.
The Chancellor also delivered his Spending Review, which sets out plans for the 2021/22 tax year. The statistics painted a gloomy picture. The government is now borrowing at its highest level in peacetime history and the economy is predicted to shrink by 11.3% this year. The new year isn’t expected to bring relief either. Unemployment levels are forecast to reach a peak of 7.5% in the second quarter of 2021 and the economic output isn’t expected to reach pre-crisis levels until the end of the year.
Unsurprisingly, shares in UK travel companies, pub chains, retailers and hotel operators all fell sharply with the news of a second lockdown.
Among those affected were:
Whitbread, owner of Premier Inn (-3.7%)
JD Sports (-5.8%)
IAG, parent company of British Airways (-6.3%)
A survey conducted by the Office for National Statistics also highlighted the challenges businesses are facing. One in seven companies (14%) fear they will not last until next spring. This sentiment was particularly high among hospitality firms.
Not all firms have been negatively impacted by lockdown through. Some, such as supermarkets, takeaway delivery firms and DIY retailers, saw stocks rise.
The Bank of England has also commented on another risk to businesses – Brexit. The central bank warned that disruption caused by firms being unready for the transition period with the EU coming to an end will shave 1% off growth in the first quarter of 2021.
Looking to the EU, it is again a mixed bag of good and bad news.
Eurozone GDP increased by 12.6% in the third quarter. However, investment bank Goldman Sachs predicts economic growth will be negatively affected by the new restrictions across Europe. As a result, the bank expects the European economy to shrink again in the final quarter of 2020 and warned this is a trend that could continue into 2021.
Technology companies have largely been resilient during the Covid-19 volatility but that doesn’t mean they’re ‘safe’. In November, the EU hit Amazon with anti-trust charges over merchant data. Following an investigation by the European Commission, Amazon has been charged with distorting competition in the online retail sector. A second investigation is also pending. The firm faces a potential fine as high as 10% of its global turnover, about £15 billion.
The big news from the US in November was, of course, the presidential election. Uncertainty over who had won and whether legal action would be taken led to volatility in the markets in the days following the vote. However, the markets did enjoy a Biden bounce as it became clear that Joe Biden will be the 46th President of the United States.
While the US still battles to control Covid-19, headline figures suggest the economy is recovering at a stronger pace than expected. According to the Institute of Supply Management, US manufacturing grew at its fastest pace in almost two years in October. Output was 59.3, compared to the 55.8 forecast on a scale where a reading above 50 signals growth.
This was also reflected in the unemployment rate dropping to 6.9%, down from 7.9% in September.
In Asia, there were also positive signs of recovery, but fears remain. Japan was the latest country to exit a recession after posting 5% growth in the third quarter. However, concerns that the country now faces a third wave of Covid-19 dampened the news.
Moving away from Covid news, the largest technology firms in China saw the value of their shares fall sharply this month. Beijing’s market regulator took its first major step in tackling the monopolistic power of tech giants. E-commerce firm Alibaba was one of those affected, with shares falling 9%.
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Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.