Equity strategy and market outlook – September 2020

In this month’s strategy piece, Alastair believes that recent events in the UK appear to have triggered a global re-appraisal of the COVID-19 risk during Q4. In the event, UK PM Johnson announced relatively modest tweaks to social restrictions and the feared second lockdown proved wide of the mark, so far at least. The Bank of England statement has started to explore the technicalities of implementing a negative interest rate policy in the UK. We view this only as a risk insofar as it distracts from other policy initiatives. The recent increase in infections in Europe is a concern but the declines in European markets and a 25% decline in 2020 profits expectations to date largely discount these risks. We maintain a neutral view on global equities given the extent of the recovery of market valuations since the lows of March. For investors with relatively long-time horizons, equity valuations relative to ultra-low government bond yields and negative interest rates remain attractive for European non-financials, even if not at the opportunistic levels seen during March.

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