MARKET INSIGHT OCTOBER 2020 - Investment Office
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MARKET INSIGHT
OCTOBER 2020
Market Analysis
O cto ber 20 20
Market turmoil returns as the US election
approaches
Last month, we said that the easy part was over the end of spring, should start to moderate.
for the equity markets, after a sharp rally since Extrapolating from this to fears of a return to
March 2020. negative growth is hard to justify in light of
published economic statistics, especially leading
This observation dovetailed with our intention to indicators.
maintain a cautious approach to the stock
markets; to put our words into practice, we We are not reconsidering our view of a lasting
commented at the end of August that we were recovery in the international economy, which
increasing hedging on our allocations in the form should support additional appreciation in equities
of a put spread warrant. in the medium term. This general context will be
supported by accommodating macroeconomic
The developments seen in recent weeks, policies, if we listen carefully to central bankers
characterised by equity market consolidation and and the politicians in power!
consequently a return of volatility, have broadly
proved us right. It is true that our portfolios have In an environment where we do not believe that
not escaped the negative effects of falling asset the fundamental conditions have changed, we
prices; however, we have limited our losses could not stand by and watch this stock market
through our defensive investment policy. consolidation impassively. All the more so as in
recent months we have frequently mentioned
“We are not reconsidering our view of a lasting recovery in the
international economy.”
FRANÇOIS SAVARY, CHIEF INVESTMENT OFFICER, PRIME PARTNERS
When we consider the relatively high stock our wish to seize the opportunities that could
prices and a seriously overbought market, and in arise to strengthen our equity holdings.
view of the excessive
FRANÇOISoptimism
SAVARY,of investors,
CHIEF INVESTMENT OFFICER, PRIME PARTNERS
there is no shortage of factors justifying the So, that was exactly what we did at the end of
nearly ten percent drop in the flagship US index, September, when US stocks were hovering at
the S&P 500. around the 3,200 level on the S&P 500. We
therefore reduced some of our equity hedges, in
From doubts about the sustainability of the particular for the more aggressive profiles.
global economic recovery, to the resurgence of
COVID-19 infections Why did we not just remove
(particularly in Europe), the all hedges?
lack of additional fiscal
measures in the United States First of all, because we still
and the upcoming US refuse to fall prey to blithe
presidential election, there are optimism, given the prevailing
plenty of excuses to explain uncertainty and the
what we see as a healthy “exceptional” situation we
consolidation of the markets. continue to find ourselves in.
Of all these explanations, we Besides, it is easier to observe
find the issue of the US a consolidation than to predict
elections and the questions how far it will spread or how
long it will last!
concerning COVID-19 to be
most compelling.
We therefore prefer to move
We are sceptical about the step by step according to the
economic justifications for the roadmap we set for ourselves
stock market consolidation. As a matter of fact, it several months ago. To put it
makes perfect sense that the pace of the another way, we prefer to approach the present
economic recovery, which has been strong since
O cto ber 20 20
situation with a courageous strategy rather than In conclusion, September sent us “back to the
reckless tactics. drawing board” once again with our investment
policy.
You will appreciate that our desire to increase the
equity weighting of our portfolios, while ensuring In light of the facts and our analysis of them, we
the most rigorous risk management possible, is at felt that economic and financial developments
the very core of our thinking. did not justify calling into question our overall
assessment of the situation.
In this respect, we believe that the State’s
resumption of its role as key player and architect Accordingly, when the consolidation we were
of the economy and the implementation of the expecting materialised, we seized opportunities
“Green Deal” constitute interesting investment to reduce the defensive bias of our allocations.
themes.
These changes should hardly come as a surprise,
This issue is particularly topical in Europe after since we had flagged our intention to take
the adoption of the EC Recovery Plan, which will advantage of such opportunities. Likewise, the
focus on the green economy. We have been fact that we have decided on a step-by-step
hard at work on this theme, which should appear approach underlines two important aspects of
in our portfolios very soon. In addition, including it our monthly reports: firstly, our willingness to
in our investments will give us a foothold in the pursue rigorous risk management, and secondly,
“old economy”, which will be carried along in a the fact that pervasive uncertainty is no excuse
general market upswing, in the wake of for succumbing to blithe optimism.
confirmation of a lasting economic recovery. In
fact, this investment will complement our Lastly, restating our stance on gold and the dollar
exposure in related themes: the circular is evidence of the fact that guarding against
economy and the US infrastructure. excessive recklessness will not dissuade us from
imparting clear recommendations to show you
Turning to disappointments for the month of that we are anything but fainthearted.
September, we cannot fail to mention gold, which
we started recommending several quarters ago. Geneva, 29 September 2020
Certainly, holding large positions in gold has
given us no cause to complain since the
beginning of the year. However, its price decline
in recent weeks has been steeper than expected.
Nevertheless, we are not re-evaluating our
interest in gold under the current conditions and
looking forward 12 to 18 months. We continue to
believe that it will succeed in breaking through
the USD 2,100 barrier within that time-frame.
Consequently, we have taken advantage of the
recent weakness to strengthen gold in some of
our investment profiles.
On the subject of currency, the US dollar has
appreciated in recent weeks, consolidating the
significant losses suffered in previous months.
The conditions seem to be met for a medium-
term depreciation of the greenback, regardless
of who occupies the White House on January
20th, 2021.
We recommend reducing dollar exposure in the
accounts. Our target for it to break through the
1.20 level against the euro remains valid for the
next 6 to 12 months. What is more, we are holding
to our view that it will approach 1.25 against the
euro in 2021.
Prime Partners SA
Rue des Alpes 15
P.O. Box 1987
1211 Geneva 1
www.prime-partners.com
CONTACTS
François Savary
Chief Investment Officer
Jérome Schupp
Equity Analyst
Julien Serbit
Portfolio Manager
Tel +41 22 595 09 97
fsavary@prime-partners.com
jserbit@prime-partners.com
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