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Commentary on financial market developments – May 2020


  • US-China relations
  • downturn in consumption


May in financial and commodity markets followed April in terms of performance. Major global equity indices mostly appreciated strongly due to the gradual retreat of the coronavirus outbreak. The price of oil accelerated its rise and appreciated by an almost unbelievable +40% for May. In addition, the asset price declines caused by the coronavirus are almost erased, with stock prices already hovering near pre-crisis levels. And therein probably lies the biggest risk of the current situation…

If we take a closer look at geopolitical and economic developments, the situation is not so positive. Relations between the US and China are still tense. A trade war between the two powers has been going on for years, and now the accusations of US President Donald Trump, who directly blames China for the coronavirus pandemic, have been added to the mix. In addition, Trump has banned the US Government’s largest pension fund from investing in Chinese stocks and renewed threats to impose further tariffs. In addition, China is unlikely to be able to honour its commitment under the trade agreement to import a total of USD 36.5 billion worth of soybeans from the US each year, having only bought USD 3 billion worth of beans from here so far this year.

Concerns about the future stem not only from geopolitics but also from the world economy itself. The latter has been hit hard by the downturn in consumption (and production) in the pandemic. Although restrictions are gradually being eased, the losses in some sectors (e.g. aviation, tourism) are huge and many companies will not survive (their bankruptcies may subsequently threaten their creditors). In addition, the labour market has been hit hard and further increases in unemployment can be expected worldwide. This will, of course, have a secondary effect on demand, which will be weaker. Individual countries or super-states like the EU will try to compensate for the fall in demand. The problem is whether lenders will still be willing to continue to trust some over-indebted countries.

Caution is therefore still in order on the part of investors. There is an even greater need to emphasise the old, time-honoured rules and to spread the wealth across different assets. In difficult times, strongly diversified portfolios that include both financial and non-financial assets always hold up best. Succumbing to the current rapid price rises in some assets, and betting on one card, is a very risky strategy and could quickly run into another wave of asset repricing in the second half of the year. Indeed, there are still many question marks and uncertainties in the global economy, while asset prices are still very high after more than a decade of growth.

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