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July 2020 / OUTLOOK

Coronavirus Weighs on Economic Recovery

Global Focused Growth Quarterly Outlook Q3 2020.

Key insights

  • Not all of the concerns that battered markets in March have been dispelled, and valuations now joins the list of near-term risks we are monitoring.
  • We believe we have reached the "stop getting worse" phase and are seeing signs of economic improvement.
  • We moderated our positions in the most expensive secular growth companies and are looking around the world to find where value is presenting opportunity in quality growth stocks.

 

Equity markets staged a dramatic rally in the second quarter despite poor economic data as the combination of extraordinary monetary and fiscal stimulus, some success in slowing the spread of the coronavirus through social distancing measures, and early signs of progress in vaccine and therapy development helped fuel investor optimism.
 

Monitoring Near-Term Risks

However, not all of the concerns that battered markets in March have been dispelled, and valuations now joins the list of near-term risks we are monitoring along with concerns of a coronavirus second wave; rising China-U.S. tensions; and the impending, likely highly divisive, U.S. election cycle.

We don't know with exact certainty how the pandemic will play out from here, how countries will deal with possible second waves of outbreaks and beyond, or how long it will take to produce an effective vaccine. Even though we continue to navigate these uncertain waters, we do believe we have reached the "stop getting worse" phase and are seeing signs of economic improvement.
 

Opportunities in Quality Growth Stocks

The conundrum we currently face is that many of our long-term investments are secular growth companies, which are trading at high valuations or are very crowded trades, while beaten down areas of the market have structural questions around their ability to survive. We seek to be carefully contrarian; we moderated our positions in the most expensive secular growth names that have worked well during the initial phases of the health crisis and are looking around the world to find where value is presenting opportunity in quality growth stocks.

We believe we have reached the "stop getting worse" phase and are seeing signs of economic improvement.

We remain cautiously optimistic that the economic improvement we had begun to see in the fourth quarter of last year and the beginning weeks of this year has only been delayed and not cancelled. However, we recognise that a sustained economic recovery largely depends on containing the coronavirus in the second half of this year and beyond.

We continue to focus on businesses which are reasonably valued and will survive and grow on the other side of this recession. We are thinking creatively to determine which stocks will likely benefit from secular change, now and over time.

 

 

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