Hello. This is Jeremy Richardson from the RBC Global Equity team here with another update and some reflections on global equity markets over the last six weeks or so.

So September was an interesting month, which tried to sort of change the narrative mid-month from that sort bifurcated k-shaped recovery, so to speak, that we’ve been seeing really since the market bottomed back in March. Very much up until that time, it had been characterized by the so-called COVID immune business models, powering ahead technology, utilities, those types of businesses. And in contrast, hospitality, more sort of experiential business models who struggled to try and differentiate away from the effects of the pandemic, struggling to keep up.

That narrative came under a little bit of pressure mid-month. Really, I think is perhaps some of the excesses of the trade got explored and tested by market participants. Perhaps a little bit nervous that perhaps some of the valuations been getting a little bit overextended and divorced from what was fair. And also some allegations, too, that there was a little bit of trading and not enough investing going on within the equity market.

What was really interesting, though, I felt, was that there wasn’t a real rotation within the market. What we didn’t see was a move, a pronounced move out of one group towards the other. Yes, there was a dalliance. Yes, there was a bit of experimentation. But it was not really a sustained shift in this particular direction, which indicates to me that there was perhaps more a little bit of profit taking that we were seeing rather than a fundamental change in the market narrative.

And one of the reasons why we didn’t perhaps see that fundamental change in the narrative was because of renewed concerns over the pandemic itself. Towards the middle to end of the month, we saw rising cases of infection in many countries, particularly in developed markets in Continental Europe, which, I think, raised the prospect of a much-feared second wave in the minds of investors, which meant that perhaps they reassessed their view that maybe it was a right time to divest some of the perhaps more modern defensive names in the portfolio, these COVID-immune type businesses. And so they went back to those old favourites. As we’ve moved now through towards October, sadly, the second wave looks as though it’s becoming much more of an established prospect. But also, the market’s attention now is beginning to focus on other sources of uncertainty, in particular, the US election, which is coming up, as I speak, next month.

This has not so far actually proven to be much of a headwind for markets. They continue to be relatively buoyant, in fact. But I think the reason for that is because one of the candidates is beginning to pull away from the other. And, you know, markets really hate uncertainty. And the prospect of a close race, which would raise the chances of a contested election, extending this period of uncertainty into the future was not something that equity markets really look forward to.

So the fact that there is a sense of a clearer outcome coming here is actually being greeted with relief. And that’s actually, I think, helped the reduction in the equity risk premium, which is generally supporting equity valuations. What I don’t really detect much sign of, though, is much investigation into individual parties’ manifestos. We haven’t had that forensic degree of attention yet. And there is probably much to be discussed in this particular area because certain industries have been touted as coming under the microscope in more detail. We can think of areas such as health care, maybe elements of the energy complex, perhaps large technology companies, all of which might be perceived as being sources of risk and uncertainty for investors in those industries. Whereas, on the other hand, green new deals, infrastructure spending, building back better are some of the slogans which we have maybe associated with industrials, perhaps certain other types of renewable energy and aspects of technology, which may benefit.

But I think we should be careful about rushing to any conclusions. Often, these things don’t end up as we perhaps expect. If you go back to the 1920s and 1930s, for example, similar revival of antitrust policies. And those decades actually proved to be a really ripe time for investors as conglomerate discounts were eroded, and actually superior capital allocation resulted from companies actually becoming smaller. It actually worked out quite well for investors.

Similarly, after the 2016 election, a $1 trillion infrastructure spending promise hasn’t really come to much fruition. So I think it would be wrong to look too far into the future here and get too excited, both positively or negatively. And so in terms of the portfolio, you know, we continue to try and sort of maintain a well-balanced portfolio that, as much as we’re able to, is able to insulate from the impact of relative returns, both the potential impact of the pandemic, as well as the outcome of elections.

I hope that’s been of interest. And I look forward to speaking with you again soon.