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Global equity markets recovered in the second quarter as the trend in COVID-19 infections began to fall and central banks and governments in the major economies continued to provide liquidity through low interest rates, quantitative easing and government support packages. The MSCI World Index gained 19.78% over the quarter, whilst the S&P 500 was up 20.79% and the FTSE 100 recovered 9.15% (all in Sterling terms).

This reveals how rapidly equity markets can begin to recover from significant declines and underscores our focus on long term investment, even though this sometimes means we have to ride out market volatility. The MSCI World is now showing a gain of 1.27% for the year-to-date, whilst the S&P 500 is up 3.69%. The FTSE 100 fell -33.02% between the 31st December 2019 and the 23rd March 2020. It has pared some of these losses since then but is still showing a loss of -16.97% in the year-to-date. The major reasons for this are continued uncertainty around the terms of any trade deal between the UK and the European Union and the 19% weighting to energy and basic materials companies within the index which have been affected by significantly lower demand during economic lockdown measures.  We are also keeping a close eye on dividend cuts and cancellations in the UK market but are encouraged by the latest Henderson Global Dividend Index report indicating that the pandemic has had less impact on dividend payments in other markets, in particular Asia, which is of benefit to some of our fund selections including SPDR S&P Pan Asia Dividend Aristocrats.

Turning to the outlook for equity markets, political factors have the potential to weigh on equity markets in the coming months. It is uncertain whether the UK and European Union will strike a trade deal by December, US-China trade tensions remain and the US presidential election is far from clear cut. The other major risks are a “second wave” of coronavirus infections in the major economies or economic data which is worse than expectations. Any of these factors have the potential to create further short-term equity market volatility. We are keeping a close eye on developments and will keep you updated as our thinking progresses.

This article is for information purposes only. It does not constitute investment advice and is not a recommendation to invest. The value of investments and the income from them may go down as well as up and you may not get back your original investment.  Past performance is not a guide to the future.

Date of publication: 6 July 2020

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