The last week saw a broad risk-on sentiment emerge, with global Equities as measured by MSCI ACWI return +2.1% in GBP Terms. This was driven by Japanese and European Equities, while US Equities lagged driven partially by a weakening Dollar vs the Pound Sterling. Interestingly, “Value” equities strongly outperformed “Growth” equities by almost +2.0%. The Value segment of the market, which includes firms operating in the energy, financials and materials sectors, had been unloved by the market for some time – but has now potentially reached a point whereby they are so cheap relative to their Growth counterparts that there is room for significant upside.

It looks like the market is positioning for a scenario whereby economic growth picks up strongly following the pandemic lockdown, with an associated increase in inflation and a weakening of the ‘Almighty Dollar’ from historical highs. There is a reasonable basis for this positioning. Last week saw the continued advancement of a proposed €750bn recovery fund for the Eurozone, funded by mutually issued debt for the first time. This financial burden sharing would be one step towards resolving the structural flaws in the single currency.

Significant downside risks remain however, the principal one being that the economic recovery falls short of what the market is expecting or there is a significant second spike in coronavirus cases. To add to this, we face increased tension between China and the West over the latter’s designs on Hong Kong, as well as an upcoming US election amid rioting across American cities.