Provided by Mercer - CERS Investment Adviser

Market Developments

Risk assets continued to recover in June but at a slower, more volatile pace than in May. Encouraging signs of gradual reopenings across the developed world and a commensurate rebound in economic activity indicators such as payrolls and purchasing manager indices were tempered by evidence of the pandemic gaining pace in a number of US states and its continuing spread in large emerging market countries such as India and Brazil. Regional flare ups in other countries where the virus seemed to be under control such as China, UK, Germany and South Korea added to the concerns.

Global equities and other risky assets posted moderate returns in June, led by Australia, Europe and emerging markets. The US as a whole posted returns of c.2% while Japan was flat. Growth continued to outperform value. Even though oil prices rebounded by a further 10% in June the energy sector posed slightly negative returns. Growth Fixed income performed well as credit spreads for investment grade, high yield and emerging markets continued to tighten. News of the Fed implementing its single US corporate bond purchase program boosted sentiment in credit. Governement fixed income was close to flat with US, UK and Eurozone yields pretty much unchanged. Long dated treasury yields also remained unchanged.

The US dollar weakened over the month against major developed market currencies. The VIX index increased from 28 to 30 over the month as markets became more volatile particularly over the second half of the month. Commodities continued to rebound amid an expected pick up in demand due to reopenings. 

Monetary and fiscal support remained highly accommodative over June. The Fed committed to leaving its benchmark rate unchanged until at least 2022, the European Central Bank (‘ECB’) conducted large scale refinancing operations at negative interest rates and the Bank of England (‘BOE’) increased the pace of quantative easing.

Outlook

Despite all of the action from Central Banks and governments, the economic toll of mandated shutdowns has come through in Q1 2020 GDP figures with annualized quarterly GDP declines ranging from -8% in the US to -14% in the Eurozone. Economic growth in China was negative for the first quarter of the year for the first time in decades. However, the bulk of the Chinese population has returned to work and with restrictions having been lifted in the worst affected areas, we have seen a rebound in Q2 and hope to see that trend continue in Q3 of 2020. This is likely to cause another outbreak of infections within China but it is expected that Chinese authorities will closely monitor this.

Emerging Q2 2020 economic data will likely show unprecedented declines in global economic output, given lockdowns only started very late in Q1 for the US and UK. However, tentative reopenings across the developed world during May and China being even further ahead has led markets to expect a bottoming out this quarter and a return to growth over the coming quarter, albeit from a low base. 

While there has been a sharp rebound in economic activity that has exceeded market expectations, it is unlikely that output and employment return to pre COVID – 19 levels until the end of 2021. Both the international monetary fund (‘IMF’) and the World Bank now estimate that global growth will be c.-5% for 2020. The growth path for 2021 will depend on whether the virus is contained or only controlled, whether fiscal support remains in place, whether businesses will start investing again and the extent to which permanent behavioral changes by consumers challenge established business models and lead to a lengthy structural adjustment process.

We believe that volatility is likely to remain elevated in equity markets over the coming weeks as news of infections and possible vaccines continue to develop.  As economic activity returns to normal and lockdowns, quarantines and travel bans are lifted; stronger global growth should return to offset the expected weak growth during the following months.  That being said a lot of the growth lost in the retail and service industries in the first half of the year is unlikely to be recovered.

NOTES

Scheme Year to date performance is the period from 1 June 2020 to the most recent month shown.

1 Year performance is the cumulative performance of the last 12 months to the most recent month shown.

Multi Asset Fund performance assumes no lifestyling.

Performance shown is net of annual management charge.

The investment choices offered by the Trustee will be regularly reviewed and may be varied from time to time.

Before you choose a fund we recommend that you speak to an Independent Financial Adviser. The CERS Trustee preferred Independent Financial Adviser is Milestone Advisory DAC. You can contact them or your own independent financial adviser to assist you to review your investment choices. You can contact Milestone Advisory DAC at Canal House, Canal Road, Dublin 6, at info@milestoneadvisory.ie or call them on 01 4068020. Their website is www.milestoneadvisory.ie .

If you require further information please contact the CERS Team at info@cers.ie