Stock Take

Shaking off their losses from earlier this year, global stocks reached a record high last week. The FTSE All-World index rose to its highest-ever level, recording the best August for global stocks in decades.

It’s important to note that the recovery in share prices isn’t evenly spread. But the fact it has taken place at all is largely due to the financial support pumped into global economies by governments and central banks.

That’s why all eyes were on a conference of central banks last week, which is usually held among the mountains of Jackson Hole in Wyoming, but this year was held online.

The main piece of news there came from the US central bank, the Federal Reserve, which said it will be more flexible with managing inflation. In practice this means that it won’t rush to increase interest rates if inflation rises above its current target.

So, what does this mean for investors? Given that low interest rates are one of the reasons why stock markets have performed well in recent years, commentators took the news quite well. The news is “marginally positive” for investors in risk assets (such as equities, high-yield bonds, and property), noted Mark Holman from TwentyFour Asset Management, co-manager of the St. James’s Place Diversified Bond fund.

Meanwhile, early last week, officials from the US and China reaffirmed their commitment to the first phase of their trade deal. The deal is a rare piece of cooperation between the two countries, whose relationship has deteriorated recently in lots of other areas. In the past few months, tensions have risen over issues like data security, intellectual property, Hong Kong, Taiwan, and human rights.

Investors are keenly aware of the risks these present. However, there are deep ties between the two countries that might limit the extent to which they diverge over these disputes. These common interests are likely to keep the disputes in check, argues Michael Collins from Magellan, managers of the St. James’s Place Global Growth and International Equity funds.

“The China—US tussle is more a mercantilist power struggle between economically interwoven and flexible countries that have different political systems and values. Such scuffles typically find an equilibrium where rivals co-exist, or even cooperate,” he adds.

Still, the relationship between the world’s two largest economies is an issue that’s not going away, and will be keeping investors occupied long after the world has recovered from COVID-19.

Finally, Japan’s longest-serving prime minister, Shinzo Abe, announced last week that he’ll soon stand down from the role for health reasons.

Given the context of the pandemic, Japan’s ruling party is likely to replace him with someone who will continue the emergency measures needed to support the economy, says Yoshi Ito of Nippon Value Investors, manager of the St. James’s Place Japan fund.

“As Abe’s resignation occurred suddenly amid the COVID-19 pandemic, when…economic stimulus measures are in urgent need, it is highly likely that LDP [the ruling party] would choose as a successor someone who would continue the policies of the Abe administration.”

Dividends return
Research released last week highlighted another challenge that’s faced investors in recent months: dividend payments.

Janus Henderson Investors found that global pay-outs to shareholders declined more than a fifth in the second quarter of the year, falling to $382 billion. That’s because lots of payments from companies to their shareholders have been cut or delayed since COVID-19 began.

This has been a challenge for investors, because dividend payments have contributed significantly to the total return from equities.

However, as the world recovers from the pandemic and conditions begin to return to normal, investors are likely to see these payments begin to return, argues George Luckraft from AXA Investment Managers, which manages the St. James’s Place Allshare Income Unit Trust.

“As economic conditions improve, companies that have weathered the storm well are beginning to resume dividend payments, including paying some that were deferred earlier in the year. This trend should continue in the absence of renewed national shutdowns as companies get comfortable with the new norm,” he adds.

Pret a danger
But even if dividend payments start returning to normal soon, many other things won’t. For example, a political row gripped the UK last week when the government began urging workers to return to their workplaces.

Changing working habits have been challenging for businesses that rely on urban footfall. Employers’ organisation the CBI warned last week that city centres will become “ghost towns” if people aren’t encouraged to return.

Yet a survey released last week shed some light on the UK’s attitudes to a return to office life. Under a third (31%) of the 2,600 respondents polled by YouGov believe we should be encouraging a return to work, while almost half (47%) disagree. Interestingly, over-65s are the most in favour, with 44% of them believing that it’s time for the nation to dust off its office wear.

In other words, people who don’t tend to work in offices are all in favour of a return – but the millions of commuters who’ve been granted a few months of respite aren’t so sure.

Wealth Check

From this week, teenagers turning 18 will have extra cause for celebration as the first Child Trust Funds (CTFs) also come of age.

Children born in September 2002 were the first to benefit from the government scheme to encourage long-term saving, which was replaced by the more flexible and popular Junior ISA in 2011.

Over the next year, accounts worth over £700 million are due to mature.¹ One potential snag is that as many as one in four CTFs is reckoned to be ‘lost’, where families have forgotten they exist or lost track of where they are invested.²

Young savers can withdraw all the money and either spend it or put it into a normal savings account. But a further option introduced earlier this year means the money can be transferred directly into an ISA on maturity, preserving the tax benefits and also leaving the saver’s standard annual ISA allowance unaffected.

Many parents will hope that young adults can be encouraged to stick to the savings habit. And for younger savers, parents may want to consider whether to take advantage of rules introduced in 2015, which mean that they don’t have to wait until the child’s 18th birthday to transfer the funds into an ISA wrapper.

“For the youngest holders, there are still nine years before their CTF reaches maturity. It’s therefore worth considering whether that time would be better spent invested in a Junior ISA,” says Andrew Shaw, Head of Investment Communications at St. James’s Place.

¹ HMRC, January 2020
² OneFamily, January 2020

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

An investment in equities (funds) does not provide the security of capital associated with a Cash ISA or a deposit account with a bank or building society.
The favourable tax treatment given to ISAs and Junior ISAs may not be maintained in the future as they are subject to changes in legislation.

In The Picture

In this video, Ben Murray, Investment Communications Specialist, reviews recent events in markets and looks ahead to what’s in store.

The Last Word

“Your very existence is wrapped up in the things you need to fulfil. Whatever you choose for a career path, remember the struggles along the way are only meant to shape you for your purpose.”

– US actor Chadwick Boseman, the star of Black Panther, who passed away last week after a private four-year battle with cancer.

AXA Investment Management, Magellan, Nippon Value Investors, and TwentyFour Asset Management are fund managers for St. James’s Place.