Page 5 - ISQ UK July 2020

JULY 2020

Bottom five allocation areas in the June Fund Manager Survey

Value vs growth Equities Materials UK Energy
0

-0.2
-0.4

-0.6
-0.8

-1
-1.2
-1.4

-1.6
Source: Bank of America Fund Manager Survey

basis biased towards global earners of both a cyclical and more economy to think pragmatically and from an entrepreneurial
defensive nature. Exposure to the technological sub-sector areas perspective. Forget what has gone, think more about what you
which have enthused many global investors recently is more can do. Specifically in the U.K. there were hints after the last
modest. Overall, this makes the U.K. economy, equity market election of a bunch of ‘one nation’ reforms which have
and - by extension - the Pound geared towards any general global disappeared off the airwaves for obvious reasons in the last few
and domestic recovery. Progress seen in both East Asia and the months. It is essential to see initiatives like this - cutting across
Eurozone over recent months in controlling the impact of the individuals and companies alike - coming back to fill the void
first pandemic wave and hence allowing a broader restarting of that the inevitable tapering of wage and business support
economies, will help. schemes will induce.
However this needs to be supplemented by some heavy lifting And finally, one of the biggest contributions to achieving such a
domestically, beyond the use of the Bank of England’s balance backdrop over the next few quarters is avoiding a messy Brexit
sheet and the government’s budget deficit. It is probably a good trade deal finale. Brexit retains its politically provocative
sign that the senior officers of the Bank of England have recently capabilities but, shorter-term, avoiding additional economic
stepped away from the notion of negative interest rates. For the growth challenges is a must. Expect a series of compromises here
future credibility of monetary policy, this is a positive step as during the second half of the year, and a broader realisation that
negative interest rates are no panacea, as reflected by the recent simple geographic proximity and ongoing inherently high trade
experience of the Bank of Japan and the European Central Bank. links is reality.
Despite some 2020 outlook forecasting improvements from the
U.K.’s central bank, the negative economic impact still anticipated Plenty of challenges await but some common sense at both the
in this year will dwarf anything seen in recent generations in healthcare and economic policy level will mean that U.K. risk
speed and magnitude, and will not be fully offset in 2021. This is assets - especially equities and the Pound - will provide
why the maintenance of an extremely loose monetary policy opportunities for investors in the second half of the year and
backdrop will persist deeper into the 2020s. beyond, hopefully at substantially lower levels of volatility than
seen in the first six months of the year.
Fixed income markets are being remarkably acquiescent of the
big build up in fiscal deficits to fund wage support schemes and
other government spending initiatives. Partially, this reflects KEY TAKEAWAYS:
heightened quantitative easing purchasing by the Bank of
England, as well as negligible immediate inflationary threats and • Recent weeks have seen immediate pandemic
naturally muted multi-year economic growth levels. However concerns in the U.K. moderate, but patently the
such an easy absorbing of material deficits cannot be taken for backdrop is far from easy.
granted. • U.K. risk assets are as bound up with global events as
they are with domestic-driven realities.
And this is where encouraging innovative thinking comes in, akin
to the Prime Minister’s recent assertion to ‘build, build, build’. • Expect the maintenance of an extremely loose
The key to a sustainable recovery outside of confidence in the monetary policy backdrop.
health backdrop, is centred on encouraging everyone in the

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