Global retailers with e-commerce capabilities showing resilience
- Easing of lockdown restrictions globally continued to support positive sentiment in equity markets, with investors discounting negative economic data from major economies as well as the impact of riots and protests in the US and escalating US-China tensions over Hong Kong.
- Last week, we observed that support has emerged for sectors closely tied to the economic cycle (and those that were negatively impacted the most due to the pandemic), while the previously resilient technology and healthcare sectors lagged the overall market.
- Following reports that Spain and Germany would ease travel restrictions, resulted in significant share price recovery across travel and leisure stocks. The financial sector in the US and Europe has also seen major gains amid the optimism over the economic reopening. The same dynamic has supported the embattled car industry, particularly in Europe as several European countries announced stimulus packages to boost sales of clean cars.
- The same applies to Australia, where last week saw the solid outperformance of a number of sectors including banks (having rallied circa 15-20% over the course of few days. Whilst there was not a definitive piece of fundamental data which was the catalyst for the rally, there were a number of recent developments which prompted the market’s overall level of optimism for the domestic economy, such as an (a) an overestimation of the size of the Federal Government’s JobKeeper scheme by $60bn (b) stronger than expected consumer spending activity from credit and debit card data from the major banks and (b) generally positive developments in the number of new COVID-19 cases and the easing of lockdown restrictions across key States. This also extended to travel-related stocks, building materials, and diversified financials. In contrast, more growth-oriented sectors such as Healthcare and Technology, saw a more muted performance during the week.
- Investors have turned a blind eye to the increasingly violent protests within the US as the S&P 500 returns more than 37.7% over the last 50 trading days as a result of signs of domestic economic recovery as lockdown measures are loosened, economic data reported being not as damaging as expected by investors, and hopes of an effective vaccine within the coming year. This makes it the benchmark index’s largest 50-day rally since its conception.
- The rally from march has been mainly carried by FAANG stocks of whose business models have benefitted from the results of lockdown, the recent upwards rally saw a diversification in the industries of the recovering stocks with financial institutions gaining ground.
- The speculative net positions for non-commercial traders are in the furthest net short territory since 2016, hinting towards a market a potential downwards correction in the near future.
European Markets to surpass the US Market rally since March lows
- The tide may be turning for European stocks, as a result of the aggressive tactics of the European Central Bank and long-awaited follow-through on the fiscal side of the equation from eurozone governments.
- European equities have significantly underperformed their U.S. counterparts, including long-suffering small caps, over much of the past five years, however as the ECB continues to hold down government bond yields and as European governments coalesce around plans for a fiscal boost.
- The choice between taking near-certain losses on negative-yielding debt or the attractive risk premiums on European stocks does not provide investors with much choice.
5G global deployment to take a gradually more ‘regionally-made’ status
- As countries seek to prioritise investment in modern infrastructure that will drive further efficiency and support a faster move to the digital economy, Western countries are increasingly rethinking the profile of such development.
- A developing bias is emerging, with a recent announcement from the UK which now is seeking to establish a diplomatic alliance with ten countries to try and provide alternatives to Huawei’s 5G technology. The countries selected are the G7 as well South Korea, India, and Australia.
- The deployment of 5G infrastructure (the only enabling super infrastructure) may become a top strategic priority for governments globally as the global economy progresses beyond the epidemic. This will underlie a deeper and a more profound shift towards the cloud, added use of online and remotely activated business and critical consumer-related and health care services, with corresponding growth in demand for software solutions and broader cloud services.
- As a result, it is expected the rollout of 5G infrastructure and the development of 5G related technologies will be expedited.