We have been waging a global war against something we cannot see. In the 1897 novel “War of the Worlds” by H.G. Wells, it is a similar invisible bacteria that eventually stops the Martians from destroying humankind.
If we look at the markets for the six months until the end of June, we see the following:
JSE All Shares -4,77%
S&P500 -4,04%
DAX30 Germany -7,08%
FTSE UK -18,20%
Shanghai -2,15%
Gold in $ +17,34%
Oil in $ -36,94%
$/R +24%
These figures show that the biggest casualties were the European markets ex-Germany; the rand; and oil. It must be said that there was a huge swing between different sectors; for example in South Africa, the financial, property and general retailers were down more than 35%; with banks down more than 40%; and Goldminers were up more than 74%. In the USA the technology index (Nasdaq) was up more than 12% but the industrial index (Dow Jones) was down more than 9%. Another winner for people with debt was the reduction in interest rates. In SA the repo rate is now only 3,75% and the 10-year bond yield in the USA is 0,67%.
The general takeaway from this is that a diversified portfolio was protected but a concentrated portfolio was a gamble. Predicting what will happen over the next six months of the year is very difficult because of the uncertainties we face. If the Covid-19 virus causes countries to go back to more stringent lockdowns, the economies will suffer and the recessions will be deeper. If countries continue easing the lockdowns but consumers do not return to their normal way of doing things, certain sectors of the economy will recover but others will deteriorate. IT, healthcare and biotech will probably be safer bets than hospitality, leisure and travel. We also have the presidential elections in the USA, with the race probably between Biden and Trump. The polls got it horribly wrong the last time and we do not believe it is worth our time trying to predict the reaction of the markets post-election, not to mention calling the election outcome.
There are some positives to consider. Even though the markets overreacted towards the downside, and then recovered sharply to more acceptable levels, two things will sustain the recovery: the massive amount of cash in the system chasing yield; and the impending discovery of a vaccine. The future nightmare will be how governments deflate their massive debt levels, but for now we have to keep the engine going by topping up the petrol tank.
