IN FOCUS6-8 min read

Winter of worry? What the data is telling us

As winter approaches in the northern hemisphere, we discuss the outlook for Covid, the economy and markets with three experts.



David Brett
Multi-media Editor

It has been a chaotic year. The spread of coronavirus, the subsequent economic shutdowns and stop-start re-openings have created a cavalcade of uncertainty. As a result, economic growth has capitulated and markets have been on a rollercoaster ride.

With winter on its way in the northern hemisphere and European countries already struggling with a new wave of coronavirus, we talked with three experts about the spread of the virus, and the outlook for the economy and stock markets.

Azad Zangana, Senior European Economist, discusses the state of the global economic recovery and which countries are faring better than others.

Duncan Lamont, Head of Research and Analytics, tackles which stock markets look cheap after the record-breaking falls and subsequent rally.

But first we spoke to Mark Ainsworth, Head of Data Insights, about what his team is seeing in the data about the second-wave of coronavirus that is hitting Europe.

1. The virus

How bad is Europe’s new wave of coronavirus, according to the data?

Mark Ainsworth: “To make sense of the data on this new wave, there are three important numbers to look at: cases, hospital admissions, and mortality.

“Reported cases each week in the UK and France and Spain are now exceeding the highs of the peak in spring. However, in those early stages, a lot of people who got infected weren't being counted. This time around there's a lot more testing capacity and a lot more people are counted.

“Hospital admissions are not heading in the right direction. For instance, in the UK, at the start of September only about 360 people were being admitted each week with Covid-19. Whereas in the most recent week, it's almost 2000. But admissions remain well below their peaks, about one-tenth the level they were in April. That is a similar story in France and Spain.

“The mortality rate is also not nearly as bad as it was. Some people are saying that's because the virus has become less dangerous. We see no evidence that that's the case. It is true, however, that hospitals are better at treating people with the virus.

“The key thing really is to understand that the virus is so much more dangerous to older people than younger people. The evidence is now clear that every six years older you are, the risk of dying from this virus doubles. So if you're over the age of 85, there's a 15% risk of death, but if you're much younger, it's almost nothing.

Does the data suggest people are complying with local lockdown rules?

“We are seeing clear evidence that people are reacting to local lockdowns.

“For example, in Bolton, in the UK, which is a real hotspot at the moment, we can very clearly in the data a reduction in the number of people going to shops. And that's one of those discretionary activities that you would expect people to be doing less of.

“At the same time, traffic data shows people are still going to work. So it is clear that people are changing the behaviours that are risky, but still trying to keep economic activity going.

“I think the key risk is people mixing between households and in very large groups. Unfortunately, it's very hard for us to see that in the data.”

How close are we to a vaccine?

“There are now many vaccines that are at the final stages of their testing. It will become clear very soon how safe and effective they are. It's very unlikely that we'll be in the same situation next winter.”

2. The economy

Global growth has taken a battering during the pandemic as countries went into lockdown and businesses were forced to close.

However, the global economy has bounced back more strongly than expected. Schroders’ economics team recently upgraded its 2020 global growth forecasts to -4.6% from -5.4%.

The global economy is still in a tough spot. Azad Zangana, Senior European Economist and Strategist, takes us through what the data is telling us.

How healthy is the global economic recovery?

Azad Zangana: “We have seen quite a strong recovery come through in the second quarter and most of the third quarter, but leading indicators are now starting to lose momentum.

“The ‘easiest’ parts of the rebound come through. And now, the final 10% to 20% of the fallen GDP will take longer because restrictions are still in place. But otherwise the recovery seems to be progressing well.

“The data suggests that parts of the US economy appear to be stronger than expected, so there is a chance of a small upgrade to growth there. However, the virus has been spreading, once again, through Europe and the UK, so we could see some additional downgrades to those parts of the world.”

The virus started in China, so what is the data telling us about China’s recovery?

“The economy had a good run in terms of its recovery but has since then lost its momentum, similar to what we are seeing in other parts of the world.

“The data suggests the areas that have received the largest stimulus are the ones that have been performing well, such as industrial production and exports.

“But the domestic side of the economy seems to be much more cautious. Household spending, for example, is still just about negative year on year – so too are imports.

“Online sales are doing well, but in-store sales are not. Mobility data shows traffic congestion on roads has increased quite dramatically, but usage of public transport is still below the normal levels. That tells us that households are still cautious.”

The UK economy was hit hard, what is the outlook there?

“We only have figures to the end of July but have already seen 70% of the fall in GDP being recovered.

“August is going to be a very strong month because the government introduced the “Eat out to Help Out” scheme, which encouraged households to go to restaurants with a government subsidy.

“In September, we had a return to schools and universities and a lot of public administration, as well, returning to work. So again, September should be a reasonably good month.

“But I think local lockdowns and household caution will probably contribute to a slowdown in the growth rate in the final quarter of 2020. That is by no means a disaster, just a reflection of the environment we are in.”

What about Brexit and how likely is it the UK will get a trade deal by 31 December?

“We are still expecting a trade deal to be done. Although, given the time constraint, this trade deal's unlikely to cover all sectors that take part in trade between the UK and Europe. Some sectors such as services are likely to be excluded.

“Despite the increased rhetoric and increased pressure on both sides amid threats of backing out of the original withdrawal agreement, both sides are still talking. I think that's a really important sign that progress is probably being made.

“The priority for the government is to say that Brexit is finished and its delivered on its promise of a trade deal. It doesn't have to be a particularly good one.”

3. Stock markets

Stock markets have endured a rollercoaster ride over the last nine months. The record-breaking fall in March as Covid-19 spread was quickly followed by an equally remarkable recovery.

It has left investors wondering whether they have missed an opportunity or if there are still bargains to be had. Duncan Lamont, Head of Research and Analytics, explains what the valuations are telling us.

Which stock markets look ‘cheap’?

Duncan Lamont: "Back in March the markets we looked at (UK, US, Europe ex-UK, Japan and emerging markets) appeared to be offering potentially good opportunities across any of the valuation measures we used.

"The unfortunate reality today, however, is that almost all of these valuation metrics are now in pretty expensive territory following the strong rallies we’ve seen.

"Where once the table below was a sea of green signifying cheapness, we now see mainly red, which suggests expensiveness."

  • For the full story and detailed explanation of the valuation metrics click here.


Which stock market looks most expensive?

“The US is expensive, but this has been the case for years. However, this trend has accelerated as the US market has strengthened even further.

“But it is also where growth has been strongest. It is where some of the technology companies that benefited from the work from home culture are based. Their prices have been driven up very high, but it's actually because the companies have been performing very well.

“However, more broadly, it is hard to see any of the markets in our table that look good value right now.”

Will stocks fall if valuations are high?

“The valuations we are talking about here can be a useful indicator when you're thinking about long-term returns. And by long-term, I mean five, 10, 20 year returns.

“They are completely and utterly useless at given you any indication about what is going to happen in the near term. And by near term, we're probably talking to up to three years, maybe even five years.

“We have had a huge run and markets have effectively brought forward some of the returns that you might have expected to earn over the coming years in the last six months.

“I think that what the valuations are telling us is that stock markets are set up right now for a period of potentially below-average returns.”

How attractive are stocks?

“Stocks look expensive in a vacuum, but when you think about the broader investment universe, actually they don't look too bad at all.

“If you look at cash in your bank account, you're getting next to 0%. Government bond yields, you're getting next to 0% as well.

“What counts in favour of stocks is that we still have central banks and governments who are very accommodative regarding monetary and fiscal policy.”

“So everything, unfortunately, looks expensive and people have to put the money somewhere.”

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.



David Brett
Multi-media Editor


In Focus
David Brett
Market views

Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at 40 Esplanade, St. Helier, Jersey JE2 3QB, (No.31076).

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