Monthly Commentary – August

Despite economic turmoil in Turkey and an escalation in Sino–US trade tensions, global equities pushed higher in August. North American markets were the month’s strongest performers. By some measures, the US’s key S&P500 index recorded its longest ever bull run – approaching 10 years, during which it increased four-fold from the depths of the financial crisis. Strong returns also came from Japan, where economic growth figures exceeded expectations. Given the global uncertainties, both North America and Japan were also helped by their perceived safe haven status.

In contrast, emerging markets were generally weak. The US ramped up tariffs on Turkish steel and aluminium as relations soured over the detention of an American pastor. As the lira plunged, concerns mounted that the turmoil could spill over to other emerging markets.

Latin American stocks fell particularly heavily as many of the region’s currencies weakened against the US dollar. Compounding this was the uncertainty over who will win Brazil’s presidential race, with a clear frontrunner yet to emerge. Asian equities also lagged on concerns about the Chinese economy alongside disappointing results from Chinese technology giant Tencent. Meanwhile, the UK’s chaotic Brexit preparations depressed its stockmarket’s returns.

The strongest sector was Information Technology as Apple became the first company to be valued at US$1 trillion. Amid an otherwise defensive tone, the Healthcare sector performed well. Weakness was mostly confined to the commodity sectors, with both Energy and Materials affected by ongoing trade tensions. The only other sector to record negative returns was Financials as investors fretted about the potential impact of the Turkish crisis, particularly on European banks.

The oil price was firm in anticipation of further sanctions on Iran. Meanwhile, gold declined as the US dollar, in which the metal is typically denominated, remained strong. The US Federal Reserve left rates unchanged but gave a more upbeat assessment of the US economy. This bolstered expectations of a September rate hike and prompted President Trump to tweet his displeasure at the prospect. At the Jackson Hole central bankers’ symposium, however, Jerome Powell, the Fed chair, appeared to take a more dovish stance. In the UK, the Bank of England raised rates by 25 basis points but struck a cautious tone on the outlook for further increases.

Although oil stocks were weaker last month, the Healthcare sector’s performance was strong, with Pfizer being amongst the beneficiaries. Pfizer is a global health giant whose operations span everything from innovative pharmaceuticals to well-known consumer products such as Advil and Chapstick. The company’s growth prospects are obscured by a mundane near-term outlook, making this one of the most lowly valued among its peer group of Healthcare majors. But a promising pipeline of new drugs offers potential for accelerating growth. In the meantime, cost efficiencies support Pfizer’s earnings growth while a revival of efforts to break up the group to unlock value remains a possibility. Short-sighted investors may focus on its lower near-term growth. But the company’s potential to deliver successful new products, along with an attractive dividend yield may provide scope for positive surprises. Most investors are overlooking this – making Pfizer a good example of the stocks in our ‘change is afoot’ category.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.