Market Insights – September 7, 2020

Each week, a team of experts shares its market views with you!

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Essentials

The French government unveiled an historic stimulus package. It’s worth 4% of GDP and will be rolled out over the next two years to boost the economy, which has been hit hard by the public-health crisis. Just like the plans brought in by the European Commission and Germany, the aim is to kick-start the economy with big spending on green energy.

A sector rotation began in the United States last week. Growth stocks – and particularly tech stocks – considerably underperformed the broader S&P 500 index. But this slight change in course won’t be enough to break investors’ current excessive optimism in these stocks and could continue over the coming weeks.

Despite the efforts of Opec+ to control output, oil prices have slumped recently. This is because there are still concerns about demand despite the ongoing economic recovery.

 

 

Back to work

The US economy continues to pick up, with the construction and manufacturing sectors faring particularly well. In August, the ISM Manufacturing PMI reached its highest level since November 2018, which was when US-China trade tensions began to escalate. Most indicators bounced back spectacularly when lockdown measures eased in late spring, but they have begun to lose steam since the summer. We’re not too worried about this yet – infection rates, which surged again over the summer, have dropped off in recent weeks.

Over the long term, economic growth will be buoyed by the improving jobs market. The US authorities brought in sweeping stimulus packages and injected large amounts of liquidity into the economy at rock-bottom rates. This enabled the economy to absorb the shock of the public-health crisis without too much damage, especially in terms of bankruptcies. Job creation has surged as the public health situation has returned to some kind of normal and business leaders have regained confidence – in August alone more than a million jobs were added, although most of these can be put down to companies rehiring employees they had temporarily laid off during the lockdown.

Unemployment continues to fall and now stands at 8.4%, down from around 15% at the height of the crisis. Wages don’t seem to have been hit too hard and savings increased during the lockdown, so consumer spending looks set to continue rising, especially if a vaccine becomes available soon – the US authorities have hinted that one may be ready by early November. An effective vaccine would mean business could return to normal for sectors that have been heavily impacted by social-distancing rules, such as leisure, restaurants and catering, and tourism. Of course, we have to take the US administration’s announcement with a pinch of salt, given that the presidential election is less than two months away. That election is the biggest source of concern for the financial markets, although the outcome shouldn’t derail the economic recovery, which looks set to remain on a firm track

Coronavirus is accelerating digitalisa-tion in smart cities

Because cities are so densely populated, they are vulnerable to foreseeable disasters and less foreseeable ones, like pandemics. There’s no doubt that cities around the world bore the brunt of the coronavirus crisis. And in response, governments introduced lockdowns to limit physical contact between city dwellers.                        The good news is that technology has become an essential weapon in the fight against the virus, speeding up the digital transformation that was already well under way before COVID-19 hit.

Both national and local governments used innovative technologies to track the spread of the pandemic and implement certain public-health strategies. We’ve also seen that having the necessary technological know-how gave countries like South Korea and Singapore a clear advantage in the crisis, as they could quickly bring infection rates down without the need for a total lockdown. These new applications have showed not only just how valuable smart technologies are, but also how they can contribute to shaping smart cities going forward.

The goal of smart cities is to improve living standards through such things as increased digitalisation, cleaner energy and transport technologies. To tap into this structural theme, we launched our Smart Cities Certificate in 2017. The Certificate has delivered solid returns both since its launch and so far this year, which proves that this theme is worth investing in.

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