October 2020 Market Commentary
Officially, in the first full month of Fall, markets in October were primarily focused on two factors: first, the re-emergence or “second wave” of COVID-19 across Europe and the U.S., resulting in additional lockdown measures in some European regions; second, the looming U.S. presidential election between Donald Trump and Joe Biden.
Markets saw gains in the beginning of the month, but saw those reversed as new lockdown measures to contain the second wave of coronavirus caused increased economic growth concerns. Additionally, a few setbacks during vaccine tests, specifically a much publicized incident in the AstraZeneca trials, worried markets about the possibility of a prolonged wait until a viable vaccine is available en masse.
Additionally, the lack of a new stimulus bill caused angst and losses in equity markets, as President Trump held off on any new measures leading up to the election.
The UK markets experienced consistent volatility in preparation for the US elections. Also UK banks are experiencing the challenges of low interest rates, dividend restrictions and flat yield curves. Furthermore, Prime Minister Johnson implemented plans to go into a new coronavirus-related lockdown to restrict non-essential businesses.
China and China-linked emerging markets have shown great progress with virus control measures which have resulted in a quicker resumption of economic activity.
Though gold was relatively flat to slightly down for the month, it continues to serve a valuable role in portfolios, particularly ahead of a turbulent and uncertain election cycle.
As mentioned during our recent webinar, equity markets seem prepared for either a Trump or Biden victory, as neither are expected to introduce major tax measures or industry regulation, particularly around ‘Big Tech’. Paired with the likelihood of an additional stimulus bill, market sentiment seemed positive heading into election week.
The KLCI closed October 2020 at 1466 points, the lowest since the end of May 2020. This is partly due to profit taking and foreign selling as investors remained wary ahead of Budget 2021 on 6 November, Bank Negara Malaysia’s interest rate decision meeting on 3 November and the US presidential election on 3 November. Further cases of COVID-19 recorded also negatively affected market sentiment as the Conditional Movement Control Order (CMCO) was extended.
On 23 October, market turned cautious due to a speculation about a state of emergency that might be declared. However, it did not materialize as the King viewed that the current management of the pandemic has been effective.