Market update – November 2020

Markets volatile as second wave strikes

Markets experienced further volatility at the end of October as investors took fright at the resurgence of Covid-19. Restrictions on activity are being re-imposed across Europe; curfews have been announced in Italy and Spain, meanwhile France and Germany have declared second national lockdowns. There is still hope that one or more vaccines will receive approval this year, but this has not been able to allay concern about renewed economic disruption from the pandemic. Investors have also been disappointed by the lack of progress on further US stimulus measures, which will now have to wait until after the US election. The latest sell-off leaves global equities little changed year-to-date.  

Biden remains ahead in polls as US votes

Polls continue to point to a Biden victory in the upcoming US election. The Democrat candidate now has a larger lead in polls than Hillary Clinton had over Donald Trump in the weeks before the 2016 election. There has been a high level of early voting, suggesting turnout this year will also be high. Over 70 million Americans have already cast their vote, more than half the total turnout of the 2016 election, according to the US Elections Project. Many US states have made it easier to vote early in order to avoid crowding at polling stations. However, this could also contribute to a delay in determining the election outcome, as counting of postal votes in some states will not begin until election day.

Brexit uncertainty continues to weigh on UK

The UK and EU continue to negotiate a trade deal to take effect when the current transition period ends at the turn of the year. There is now more optimism that an agreement will be reached in time for ratification in 2020. The stakes remain high: businesses have had to devote significant time and resource to dealing with the pandemic and may have limited ability to respond to the additional challenges of a “no trade deal” Brexit. The US election also remains a complicating factor for the UK. Joe Biden has said that the US will not agree to a trade deal with the UK if Brexit threatens Northern Ireland’s peace agreements.

Portfolio positioning

Despite recent volatility, we expect that gradual economic recovery, combined with stimulus measures from governments and central banks, should continue to support global equity markets. However, we remain well prepared for periods of turbulence in markets. Where appropriate, we continue to reduce our UK equity exposure and transition portfolios towards a more global approach. This has served us well in recent months. We also maintain our allocation to gold in many multi-asset portfolios, as we believe it continues to offer valuable defensive and diversifying properties.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

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