Page 4 - ISQ UK July 2020

INVESTMENT STRATEGY QUARTERLY

What Awaits the U.K. Economy and Markets

in H2 2020?

Chris Bailey, European Strategist, Raymond James Investment Services

After a tumultuous first half of the year, thoughts about
the next six months must at first be centred on the risks
Let not your mind run on what you lack as much as on
of repeat volatility. Recent weeks have seen lockdown
what you have already - Marcus Aurelius
life exhibit a slow liberalisation across the U.K. as
immediate pandemic concerns moderate. Patently it is
still not easy out there and maturing government wage borrowing levels are at proportions of national output last hit in
the couple of decades after World War Two. As for the Brexit
support schemes, a concern from many consumers
debate, the legislative deal struck in January feels a long time
whether or not to spend money, and a business ago and precious little progress has been made on the required
environment backdrop where entrepreneurs are detailed trade deal.
uncertain whether to take risks and commit to Such caution and pessimism does not sit well with a normally
investments, will linger over the rest of the year and into positive default position towards both human progress and
2021. human ingenuity over time. Certainly, the undeniably fallible
human race can surprisingly easily get caught up in a short-term
The latest regular survey of global money managers published in cycle of uncertainty and despair. Financial markets are similarly
mid-June highlighted that a majority of respondents were still swayed over shorter time periods by such psychological and
very cautious about the future for all the reasons cited above. behavioural traits, hence the volatility of the first half of the year
And judging by material underweight holding in U.K. equities and the underperformance of U.K. equity assets, as well as a
versus benchmark by the average global investor, concern about lacklustre time for the pound.
our own country runs deep. Undoubtedly, this will be partially
influenced by the terribly sad aggregate pandemic cases and There is little doubt that U.K. risk assets are as bound up with
death rates, but it is also influenced by other matters that more global events as they are with domestic-driven realities. The U.K.
typically impact financial markets. After all, recent disclosures is an open economy highly influenced by the level of global
about U.K. GDP has suggested an annual decline for 2020 at commerce and travel. Meanwhile, the composition of the larger
levels not seen in over three hundred years. Meanwhile, capitalisation elements of the U.K. equity market is from a sector

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