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WeekWatch – ‘Global stocks reached a record high last week’ September 2020

WeekWatch – ‘Global stocks reached a record high last week’ September 2020

Shaking off their losses from earlier this year, global stocks reached a record high last week. The FTSE All-World index
rose to its highest-ever level, recording the best August for global stocks in decades.

It’s important to note that the recovery in share prices isn’t evenly spread. But the fact it has taken place at all is largely
due to the financial support pumped into global economies by governments and central banks.

That’s why all eyes were on a conference of central banks last week, which is usually held among the mountains of
Jackson Hole in Wyoming, but this year was held online.

The main piece of news there came from the US central bank, the Federal Reserve, which said it will be more flexible
with managing inflation. In practice this means that it won’t rush to increase interest rates if inflation rises above its
current target.

So, what does this mean for investors? Given that low interest rates are one of the reasons why stock markets have
performed well in recent years, commentators took the news quite well. The news is “marginally positive” for investors
in risk assets (such as equities, high-yield bonds, and property), noted Mark Holman from TwentyFour Asset
Management, co-manager of the St. James’s Place Diversified Bond fund.

Meanwhile, early last week, officials from the US and China reaffirmed their commitment to the first phase of their trade
deal. The deal is a rare piece of cooperation between the two countries, whose relationship has deteriorated recently in
lots of other areas. In the past few months, tensions have risen over issues like data security, intellectual property, Hong
Kong, Taiwan, and human rights.

Investors are keenly aware of the risks these present. However, there are deep ties between the two countries that might
limit the extent to which they diverge over these disputes. These common interests are likely to keep the disputes in
check, argues Michael Collins from Magellan, managers of the St. James’s Place Global Growth and International Equity
funds.

“The China—US tussle is more a mercantilist power struggle between economically interwoven and flexible countries
that have different political systems and values. Such scuffles typically find an equilibrium where rivals co-exist, or even
cooperate,” he adds.

Still, the relationship between the world’s two largest economies is an issue that’s not going away, and will be keeping
investors occupied long after the world has recovered from COVID-19.

Finally, Japan’s longest-serving prime minister, Shinzo Abe, announced last week that he’ll soon stand down from the
role for health reasons.

Given the context of the pandemic, Japan’s ruling party is likely to replace him with someone who will continue the
emergency measures needed to support the economy, says Yoshi Ito of Nippon Value Investors, manager of the St.
James’s Place Japan fund.

“As Abe’s resignation occurred suddenly amid the COVID-19 pandemic, when…economic stimulus measures are in
urgent need, it is highly likely that LDP [the ruling party] would choose as a successor someone who would continue the
policies of the Abe administration.”

Research released last week highlighted another challenge that’s faced investors in recent months: dividend payments.

Janus Henderson Investors found that global pay-outs to shareholders declined more than a fifth in the second quarter
of the year, falling to $382 billion. That’s because lots of payments from companies to their shareholders have been cut
or delayed since COVID-19 began.

This has been a challenge for investors, because dividend payments have contributed significantly to the total return
from equities.

However, as the world recovers from the pandemic and conditions begin to return to normal, investors are likely to see
these payments begin to return, argues George Luckraft from AXA Investment Managers, which manages the St.
James’s Place Allshare Income Unit Trust.

“As economic conditions improve, companies that have weathered the storm well are beginning to resume dividend
payments, including paying some that were deferred earlier in the year. This trend should continue in the absence of
renewed national shutdowns as companies get comfortable with the new norm,” he adds.

But even if dividend payments start returning to normal soon, many other things won’t. For example, a political row
gripped the UK last week when the government began urging workers to return to their workplaces.

Changing working habits have been challenging for businesses that rely on urban footfall. Employers’ organisation the
CBI warned last week that city centres will become “ghost towns” if people aren’t encouraged to return.

Yet a survey released last week shed some light on the UK’s attitudes to a return to office life. Under a third (31%) of the
2,600 respondents polled by YouGov believe we should be encouraging a return to work, while almost half (47%)
disagree. Interestingly, over-65s are the most in favour, with 44% of them believing that it’s time for the nation to dust
off its office wear.

In other words, people who don’t tend to work in offices are all in favour of a return – but the millions of commuters
who’ve been granted a few months of respite aren’t so sure.

AXA, Magellan, Nippon, and TwentyFour are fund managers for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute
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