Market Update October 2020

As the US election approaches, volatility levels in the markets are ratcheting up a little. This particular election is arguably uniquely different from any previous election for a number of reasons (i) the degree of polarisation in US politics and in US society in general (ii) the fact that at the moment the incumbent is not expected to serve a second term according to both the polls and the bookmakers (iii) the election taking place in the midst of a major health crisis brought about by the Covid pandemic – a crisis thrown into very sharp relief by the President testing positive in recent days. Against this backdrop, it is very unlikely that markets will settle down over the coming weeks and if anything are likely to become even more volatile in the very short term.

Aside from the US election, other issues having an influence on current market direction include: Central bank support for bond markets in Europe and the US which is continuing at a substantial level and is unlikely to be scaled back any time soon; the US-China trade dispute simmers on and may well get worse before a settlement is reached; and, on a more localised level, the Brexit negotiations continue to ebb and flow with a hard Brexit looking increasingly likely.

The table below shows key market performances over the first three quarters of the year expressed in euros.

Market *                                Perf. YTD (euro terms)*

Ireland                                                  -10%*

UK                                                          -25%*

 Japan                                                    -4%*

Europe                                                  -12%*

US                                                          +1%*

China                                                     -5%*

*Source: Financial Times, Financial Express 

While we have been cautious on equity markets for quite some time now, recent political, economic and market related developments have led us to become even more reticent about markets. We feel the probability of a correction has materially risen over recent weeks. As a result, we are strongly encouraging clients to phase any new equity investment and to increase bond holdings across their portfolios.

For holders of cash deposits, the picture is not getting any rosier either. Negative interest rates have arrived in Ireland and may well be around for a number of years. Cash holders are strongly encouraged to look at other options such as short duration bonds and higher yielding assets as substitutes for a portion of their cash.

Areas where we currently see value include international property. The long term outlook for property demand and usage has been plagued by uncertainty since the arrival of Covid with the result that the share prices of many property funds fell very sharply in March and, unlike most other sectors, have not recovered. A number of high quality property funds are currently trading at discounts of 30-40% to their underlying asset value and are paying dividend yields of 7% and more. While we believe, there are serious questions about retail property demand in the future, we believe the negative sentiment towards office property is severely overdone while other sub-sectors such as logistics have undeniable growth prospects.

We remain neutral on oil and other commodities at this point but are positive on gold in the short term as volatile markets will most likely lead to a higher gold price.

If you have any queries in relation to the above, please contact your Harvest Private Client Adviser or call us on 01 2375500 or email justask@harvestfinancial.ie.

Terry Devitt -Investment Director

This marketing material has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and;or capacity for loss of any particular person. It should not be relied upon to make investment decisions.

Warning: The figures refer to the past. Past performance is not a reliable indicator of future results. Warning: The return may increase or decrease as a result of currency fluctuations.