The US elections remain the biggest concern in the investment markets, global equity markets saw heightened volatility as the elections closed in. Capital stayed on the sidelines awaiting redeployment, resulting in the slight fall in the credit market as yields rose. However, high yields had a positive month as credit spreads narrowed with the ongoing governmental fiscal support, plus an improving operating environment as the covid epidemic is being tackled on.

In the reminder of the year, we expect fixed income to stay positive as central banks remain supportive of credit markets via (1) extended low interest rate environments, and (2) ongoing quantitative easing plans. In particular, the Bank of England increased its scale of asset purchases in its most recent interest rate meeting, while the European Central Bank mentioned that it would increase supportive measures if the current 2^nd wave epidemic continues. The US Fed didn’t offer further increases in its QE plans, but the Fed promised to extend the low interest rate environment, which also provides material support to the fixed income markets.

US elections posed as one of the largest focus in the investment market in October, as political direction uncertainties could possibly affect the growth prospects of the local market. With fundamental economic indicators staying on the weak end, including various PMIs staying in contraction zones, we find it difficult to build the case for a stronger outlook for the Japanese economy.

The newly formed Japanese government is still trying hard to find a way out for the local economy. As the ongoing covid epidemic continues its spread in the country, even though numerous policies are being considered, ranging from ease of foreign investments to insistence on holding the Olympics, we would keep our hopes for the economy low. While the Olympics could possibly help lift the limited growth, unless the global economy can fully recover to pre-covid levels in the short term, which requires fully functional covid vaccines and a well-executed deployment, we would rather remain cautious and refrain from overweighting on Japanese equities.

In most of the key emerging market economies such as India, Brazil, South Africa, and numerous Southeast Asian countries, the covid epidemic is losing steam with new daily cases falling. This provides further boost to market confidence, concurrent with the solid improvement in economic fundamentals, Brazil and India PMIs in particular have hit new highs in over a decade. With gradual improvement in the local economy and anticipating global demand recovering, we anticipate EM equity performance to follow.

As one of the largest concerns in form of US elections are going to be settled over the coming month, the level of uncertainty should gradually ebb out with the roadmap for the 4 upcoming years mapped out. At the moment, it seems we would likely see a split Congress, suggesting a more or less status quo in terms of policy direction, which should be positive for emerging market performance. However conservative investors could consider to remain on the sidelines until the smoke clears, as the current closely contested elections would likely result in recounts and court cases, which could still drive volatility in the market.

Covid remained the centre of attention as the situation rapidly deteriorated in numerous European countries. Towards the end of the month, daily covid cases in many countries has far exceeded the 1^st wave, resulting in local governments re-imposing full on lockdown measures. As the economy has just started its recovery, the newly ordered month-long lockdown threatens the weak recovery.

Fundamentally, Europe saw improvement in some of its fundamentals, Eurozone manufacturing PMI figures hit a recent high, yet services PMI saw a continued contraction, which is expected to further worsen with the imposed lockdowns. The market remains vulnerable to external shocks, which is compounded by the Brexit uncertainties. The scheduled deadline for a trade deal was delayed, but due to the fundamental divergence on several key issues, the risk of a no-deal Brexit by the end of the year remains high. With all the uncertainties arising from various factors in the European equity market, we expect to see a relatively larger downside risk compared to the upside potential.

The US elections were held at the beginning of November, although the final results have not been officially announced, according to multiple media outlets, former Vice President Joe Biden have seemingly won the presidential race, but incumbent President Donald Trump have yet to admit defeat and allegedly claimed voter fraud. With the races staying tight till the very end, we don’t expect to see final results until later, but there is a very good chance that we will see a Biden administration along with a split Congress.

If the projected result turns out to be true, we could infer 3 key implications out of this. First off, the fiscal stimulus will likely be smaller than the original estimate, as a split Congress should put a cap on the Democrats’ wish list, which might result in less buoyancy to the patchy economy. Secondly, the more controversial policies such as a variety of tax raises will likely be postponed or withdrawn altogether, potentially alleviating the downward pressure on the investment markets. Lastly, an expected normalisation of foreign relations, including a possible rollback of tariffs and sanctions, should support the global economic recovery. That said, the current market is still on the higher end in terms of valuations, yet the US market should see positive gains on the longer term as corporate earnings recover.