Global Equity markets consolidated over September and October ahead of the US Presidential elections and as the Covid 19 health crisis continued. In November the markets have started strongly following the US elections and positive developments on a COVID 19 vaccination.
Despite the refusal of President Trump to concede defeat most investors expect that there will be a smooth transition of power to President elect Biden in January 2020. The markets also took comfort in the Republican party likely holding on to its majority in the Senate. This would reduce the threat of tax increases or major changes to US health care policies.
Pfizer Inc’s experimental COVID-19 vaccine is more than 90% effective based on initial trial results, the drug maker said on Monday, 9 November. Pfizer expects to seek U.S. emergency use authorization for people aged 16 to 85. Separately, Moderna announced on Monday, 16 November that it’s Covid – 19 vaccine shows nearly 95% protection. Subject to regulatory approval Pfizer and Moderna plan to deliver around 1 billion doses of the vaccine each in 2021.
It can be seen from the table below that most gains in the US and global markets for this year were registered in November. China remains the strongest major market in 2020, although it did not rally as strongly on the US election and vaccine news.
Equity market performance by sector
Following election night, the health care sector posted strong gains despite the likely win by Biden. That’s because Republicans are expected to maintain control of the Senate meaning that large scale changes in the regulation of the US health care sector is not expected. Energy, Financials, Industrials and Materials have all recorded double-digit gains in November. That is because of the encouraging news on the COVID-19 vaccine leading investors to chase sectors that are laggards, and which will benefit from a return to normal economic activity.
AXIOM GLOBAL SECTORS LEADERS PORTFOLIO REVIEW
The Axiom Global Sector leaders portfolio retreated in September and October in line with the market. The downside was protected slightly by the call options that we sold. Year to date the biggest gains have been recorded by Facebook, Alphabet, Tencent, Amazon, Alibaba, Apple, Microsoft, Semiconductor ETF and United Health Care. Negative returns were reported by China Construction Bank, JP Morgan and Merck. Losses were also recorded on Exxon and Boeing which have since been sold
We have made the following changes to the portfolio
Sold Lockheed Martin and purchased Honeywell
1) Likely victory for Biden means that defence spending growth may slow down over the next four years – this would negatively impact Lockheed
2) Honeywell has four divisions: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, Safety and productivity solutions. These should benefit from an economic pickup that should follow from a successful Covid 19 Vaccine
3) Honeywell is now the largest Industrial company globally so based on our process we should own the stock
4) Honeywell adjusted 2020 EPS is forecast to be down 14% on an adjusted basis – this is a solid performance given the economic sensitive nature of the business
Sell Puts on Alibaba, Apple and Facebook
The covered call option on Alibaba, Apple and Facebook that we previously sold was assigned on the call date. As we still like these stocks but consider the present levels high, we sold puts on quantities equivalent to our original positions.
performance based on model portfolio up to January 2020, from February 2020 onwards based on aggregate of actual portfolios
Going forward an effective Covid 19 vaccine is likely to be delivered in 2021. That would lead to the opening of economies and a gradual return to travel. This should lead to a recovery in this year’s laggard sectors being; Energy, Financial Services and Real Estate. Although Equity markets are expensive the very low interest rates mean that buying interest will remain. Overall, we are positive on Global equity markets in 2021.
All the information contained in this document is as of date indicated unless otherwise noted.
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Nothing contained here constitutes investment advice or should be relied on as such. The value of securities mentioned in the report and the income from it, if any, may fall or rise. Past performance of the securities mentioned in the report is not necessarily indicative of its future performance.
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