Editor's letter

Markets haven't finished yet

Can the bear market really be over so soon? The consensus seems to be “surely not”.

Is that it? For weeks we have been told to watch the data around new infections from the coronavirus. The second they look to have peaked, said pretty much everyone, the market will turn. And so it was. Markets started to move back up ten days ago. At the weekend, we got some suggestion that locking down 35%-plus of the world’s population is sort-of working. Infections may be peaking and Pictet’s Luca Paolini notes that global Google searches for information on Covid-19 also look to have peaked, suggesting global panic might have too. Either way, markets soared. By Wednesday morning most had recovered 20% from their lows. 

But can the bear market really be over so soon? See this week's MoneyWeek magazine for Jim Rogers’ view, but the consensus seems to be “surely not”. There is a chance the recession might not be as bad as some think (I’ve seen forecasts for a second-quarter collapse in US GDP of 40%). Intertemporal Economics’ Brian Pellegrini notes, for example, that most of the modelling around how economies perform in pandemics was done long before large parts of the population were equipped to be as productive at home as in the office (listen to our podcast with him for more). 

Yet there is an awful lot that, post snap back, doesn’t seem to be fully priced in. There are the obvious nightmarish statistics – the US has lost ten million jobs in the last two weeks, roughly the same as it lost over the entire global financial crisis. But less obvious are the mega macro trends, such as the rise in the reach of the state and its power over the corporate sector (dividend controls are not a good thing for governments to be getting interested in), or the acceleration in the retreat from globalisation and its possible consequences (inflation being the obvious one – see Edward Chancellor, Matthew Lynn and for Philip Aldrick in this week's magazine).

So how do you invest into this deeply uncertain environment? We’ve already looked at how to maintain your dividend income now that (according to Link Asset Services), 45% of UK firms have already scrapped 2020 dividends. That’s £25.4bn lost – around a third of last year’s total – and a high chance of more to come. With that in mind, we reckon you should be thinking of Japan as a high-income investment destination. I discussed this with market strategist Russell Napier in our podcast on Friday, but the key point is this: UK yields are clearly on the way down – fast. But in Japan, cash levels are high (53% of firms in the Topix have net cash) and payout ratios low: dividends shouldn’t fall. That could make the 2.3% yield available on, say, the Jupiter Japan Income Fund look very nice indeed. 

If you want a more globally orientated fund, Max looks at the Smithson Investment Trust, with its concentrated portfolio of very high-quality global mid caps. Right now, he reckons, is probably one of the best chances to buy you will ever get. For those who prefer individual stocks, Jonathan Compton looks at increasingly underrated UK mid caps to buy and hold for the long term, while Mike Tubbs looks at a biotech that might just have a treatment for Covid-19. Finally, a reminder that you should make sure that whatever you buy you are properly diversified. If you don’t know what’s going to happen next, it’s best to prepare for almost anything.

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021
Are Spacs just for suckers?
Investment strategy

Are Spacs just for suckers?

This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets…
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021