15 October 2020

Looking back at Q3

The third quarter of 2020 showed glimpses of fear, greed, and much of what exists in-between.

by James Godrich

Fund Manager


Q3 could be divided into three distinct phases. In the first, global markets moved steadily upwards as the global economy regained its footing after the paralysing lockdowns endured in the spring. In the second, hopes for a V-shaped recovery became increasingly widespread and momentum gathered in risk assets. Then, in the third, markets fell sharply as lockdown fears re-emerged and Coronavirus case statistics began to rise. This latest quarter showed glimpses of fear, greed, and much of what exists in-between.

Part of the reason for this rapidly shifting sentiment is data and news that is often changing and occasionally, even conflicting. In September, UK Retail Sales data painted an almost indisputably positive picture; retail spending on goods and services in the UK increased 1.7% on the  previous year and 2.5% compared to February 2020. Impressive for an economy in the midst of recession. But just days later, the Eurozone Purchasing Managers Index (PMI), a leading indicator of economic health, reported a reading of 50.1 (a reading of 0-50 implies an economy reporting negative growth versus the previous month and a reading of 50-100 implies positive growth versus the previous month) that was lower than the August reading, which in turn was lower than the July reading. Clearly, troubling data for an economy supposedly emerging from recession.

Similarly, Coronavirus statistics can be used to fit whichever narrative governments, scientists or the media wish. On 24th September France reported a concerning 16,000 new cases which is more than double the number of reported cases for the worst days in March for Italy, UK and France itself. However, on a positive note, the virus appears to be becoming more contagious but less deadly, with the number of related fatalities currently being less concerning in the context of wider populations.

In addition, there has been unparalleled and almost unwavering support for economies, markets and businesses from governments and central banks throughout the pandemic. This has played a key part in supporting GDP as other, normally positive parts of the GDP equation (consumer spending, business investment and net exports) have in some cases faltered. Keynesian economists will argue that disequilibrium amongst these other contributors can continue for some time and, as such, government support may be required for some time. Whilst the UK Government has announced further fiscal measures, including a follow-on to its furlough scheme (through the job support scheme), the same cannot be said about America where, at the time of writing, there is an increasing possibility that the US Congress will fail to pass a further stimulus bill before the November election. The cliff edge that is approaching as existing fiscal support rolls off should be a cause for concern for individuals in America and investors the world over.

Uncertainty and volatility is undoubtedly high in investors’ minds and brings much discomfort. That said, sometimes the best investment opportunities are found in times of least comfort.

James Godrich is the fund manager of the CSI Funds.