After generating very robust returns during the second quarter, global equity markets continued to climb higher in the third quarter. The key factors that drove stocks higher included improving economic conditions and massive amounts of stimulus provided by central banks around the world. As Q4 gets underway and as we look ahead to next year, the key forces that will impact the stock market include the economy, government stimulus, the US Presidential Election, and COVID-19.
The first half of 2020 is officially over, and it was certainly an eventful period. During the first quarter of 2020, investors witnessed the fastest 30% drawdown in the history of global equities only to be followed by one of the largest 50-day advances in market history during the second quarter. Improving economic data, massive amounts of stimulus, and encouraging news about a potential coronavirus vaccine have been the key drivers behind the stock market’s resurgence.
After a very strong year in 2019, and a very strong start to 2020, the global equity markets have sold off very significantly. Unfortunately, the reason for the decline requires no explanation – it is primarily due to the significantly negative economic impact that the coronavirus containment measures are having on the global economy.
Despite several periods of volatility experienced during the year, 2019 was a fantastic year for investors across most asset classes, sectors, and geographies. Our Cumberland Global and Cumberland International strategies performed very well in 2019, producing returns that significantly exceeded their benchmarks.
While global stock markets remain close to all time highs, we have also experienced a great deal of volatility. This trend continued in the third quarter of 2019. However, our Cumberland Global and Cumberland International strategies continue to perform very well this year.
With the Cumberland Global Equity and Cumberland International Fund strategies being fully invested (holding very little cash), your money has been thriving in the strong global equity markets that we have seen so far this year. We are positioned to continue to take advantage of global growth, and despite strong gains we see a number of reasons to continue to be optimistic for the balance of 2019.
How do you define high quality? Obviously, there is no singular definition. However, generally speaking, high quality businesses share many of the same attributes. Quality businesses tend to have strong growth prospects (in excess of global GDP growth), strong brands, high margins and profitability, strong cash generation, earnings stability, operating efficiency, high barriers to entry, and lower share price volatility.
Global Macro Review
A new year brings new hopes and plans for better things to come and without getting too religious, a prayer for 2018 not to repeat itself. Yet, the New Year’s optimism fizzled out rather quickly, starting with the circus politics in Washington. It is almost unbearable to watch as the world’s most powerful country is not be able to keep its government open and pay its civil servants. We expect the internal conflict of the United States will spill over to the unresolved trade dispute with China . We shall most likely have to wait until the agreed upon deadline of March 1, 2019 for a resolution.
We were in Hong Kong recently where we had the opportunity to listen to many thought leaders speak on their specialized fields. For this quarter’s macro review, we would like to share with you a summary of some thought-provoking topics with a perspective from Asia.
We are midway through 2018 and based on McKinsey’s most recent survey of executives’ sentiment on economic conditions, there is an increase in those who are more cautious on economic conditions and prospects for growth. It should not come as a surprise that changes in trade policy is the most cited risk to domestic and global growth in addition to being a risk to their own companies. The Bank of England’s governor, Mark Carney, has warned global political leaders about the costs of putting up trade barriers. Based on the UK’s experience with Brexit as an example, Carney pointed to their recent underperformance as a lesson in the perils of deglobalization.