US

The epidemic situation in both the US and Europe remains severe, but uncertainties in the US elections cleared, coupled with claims by two pharmaceutical companies on their near 95% efficient vaccines, market sentiment stayed positive and US equities continued their upward trend. Over the past 5 days ending Thursday, all three major equity indexes rose 1.27% to 1.67%. As for the US elections, Trump has yet to admit defeat, but according to mainstream media, Biden has already secured a victory, and had reportedly called for a formal transition process, he has also decided on his choice for the Treasury Secretary. With daily infection figures in Europe and the Americas staying elevated, the International Monetary Fund warned that the new epidemic restrictions will hamper the global economic recovery. In addition, US Federal Reserve Chairman Jerome Powell stated that the epidemic continues to pose a short-term downside risk to the economy, and it is still too early to withdraw emergency lending facilities. In fact, US retail sales grew at the slowest pace in the past six months, reflecting the weak momentum of the recovery. Next week, the US will be releasing more economic data, including the consumer confidence index, as well as the minutes of the November interest rate meeting.

EUROPE

Following the earlier rally, European equity markets have stabilized. Over the past 5 days ending Thursday, German, French, and UK equity indexes posted varying results ranging from -0.07% to +2.09%. Although there has been positive news on the COVID vaccine, European Central Bank (ECB) President Christine Lagarde said the bank will make no changes to its monetary stimulus plan. She expects a strong stimulus package to be ready in December, and also urged EU governments to roll out additional epidemic relief measures as soon as possible. On the other hand, the UK's Brexit trade talk deadlines are closing in, but the talks have recently been suspended due to a key official contracting COVID. Next week, the Eurozone will release its manufacturing purchasing manager index.

CHINA

After digesting the vaccine updates, Hong Kong and mainland Chinese stock markets tapered off, the CSI 300 Index rose 1.78% this week and the HSI gained 1.13%. As of Friday, the number of new COVID infections in Hong Kong was on the rise, fears of a 'fourth wave' of epidemic weighed on certain local property developers, while epidemic beneficiaries gained ground. Premier Li Keqiang chaired a meeting on Wednesday, stating the importance of expanding domestic demand, driving optimism in the domestic consumption sectors such as home appliances. Next week, China will announce the industrial profit figures in October.

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 Fifth Plenary Session of the 19th Central Committee was held in late October, where the policy direction for the short, mid, and long-term are outlined. Analysts have tallied the usage of certain keywords in the official circular, which signalled that China will prioritise domestic economic and technological development over an international political fight for power. Economic stimulus is expected to be limited for the short term, and the recurring theme of “dual circulations” is once again key to the upcoming 5 years, vying to shed external reliance on a multitude of products and services. Henceforth, with the positive support for domestic new economy sectors, relevant themes such as semiconductors, clean energy, electric vehicles, 5G, AI alike should see continued growth in the mid to long-term.

As for fundamentals, the Chinese economy is doing well, the Q3 GDP YoY growth continues to recover, which far outpaces other major economies such as the US and other European peers. Other fundamental indicators such as various PMIs and other investment/consumption indexes continued its steady recovery since the height of covid in China. With the elections in the US concluding soon, we expect there to be more clarity in the 4 years to come, which are expected to be supportive of the Chinese markets as uncertainties fade.

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.

US

After the US election, the recent vaccine news has been one of the most influential market news. Shortly after the media reported that the Democratic presidential candidate Joe Biden surpassed the 270 vote threshold, US pharmaceutical company Pfizer also announced that its in-house COVID vaccine is more than 90% effective in preventing infections, which drove global stock markets up, all three major US indexes hit new highs, crude oil soared, while safe-haven assets such as gold and US bonds came under pressure. On the hopes of a “game changer” vaccine, sectors that have been long under pressure due to COVID, such as airlines and movie theatres, saw strong rebounds; whereas sectors that have benefited from the epidemic, such as Internet video communication services, saw their share prices plummet, capital rotated back to old economy sectors. The US presidential election is still not fully resolved, incumbent president Donald Trump has indicated that he doesn’t accept the results of the election and said that lawsuits have been filed in six key states, which is expected to hinder any transition of presidential power. On one hand, the vaccine news is encouraging to the market, but on the other hand, the number of new COVID cases in the US has reached a record high of over 150,000 per day. Facing the worrying development of the epidemic, Federal Reserve Chairman Jerome Powell admitted that the economy is expected to face challenges in the coming few months. Next week, the US will release retail sales data for October.

EUROPE

Badly hit by the latest COVID outbreak, European stock markets were the big winners on vaccine news, both the UK and French equity indexes gained more than 7% over the past five days ending Thursday, and Spain's IBEX 35 even went up by more than 10% over the same period. Nevertheless, the governors of both the Bank of England (BoE) and the European Central Bank expressed caution on the positive vaccine news. The BoE's Governor Andrew Bailey also mentioned that any news on the UK's future relationship with the EU will likely influence the bank's policy direction in December, but at the moment, there is no clear timeline for implementing negative interest rates. The Eurozone will release the final CPI for October next week.

CHINA

China A-shares had a relatively weak performance over the week, while Hong Kong stocks fared better, the CSI 300 Index was down 0.59%, while the Hang Seng Index (HSI) rose 1.73%. Although the HSI rose this week, the Hang Seng Technology Index (HSTI), which reflects the performance of HK listed technology stocks, recorded a 2.6% drop. This was mainly due to the reported introduction of anti-trust guidelines in Mainland China, heavyweights in the HSTI drove the index down. As for economic fundamentals, China's inflationary pressures were further eased in October, with the CPI only growing 1.2% YoY. Next week, China will release data on retail sales, production, and fixed investment for October.

US

The US presidential race has been dramatic, with incumbent President Donald Trump claiming to have won the election, but since then the race has shifted in favour of former vice President Joe Biden, prompting Trump to file lawsuits over vote counting procedures in several states. Despite the back and forth, US stocks have risen sharply over the past few days, with the three major US indexes recording gains ranging from 6.05% to 6.49% over the past 5 days ending Thursday. Up till now, the results of the election remain uncertain; while Biden could win the presidential race with more than 270 votes if he wins in two more key battleground states, there will likely be no confirmation of the election results in the near future with legal challenges on the way; on the other hand, the market expects the Republican Party to retain control of the Senate. On the epidemic front, the US became the first country to break the 100,000 mark for daily new cases, while European countries are also logging in record daily covid cases. The US Federal Reserve left policy rates unchanged, but noted that the epidemic still poses high risk to the medium-term outlook. As for fundamentals, the ISM Manufacturing Index rose 3.9 to 59.3 in October, its largest jump since 2018. Next week, the US will release October CPI and November Michigan consumer sentiment data.

EUROPE

The covid epidemic in Europe continued to be severe, with the UK, France, and Germany all imposing lockdown measures. However, this has not dampened the sentiment of the investment market, as European equities followed the rise of US equities, and the UK, French, and German equity indexes rebounded by 5.81%, 9.07%, and 8.36% respectively over the past 5 days ending Thursday. Against the backdrop of a high number of new cases in the UK, the Bank of England decided to increase its bond purchases by an additional £150 billion to £895 billion, exceeding market expectations. Next week, both the Eurozone and the UK will release preliminary GDP figures for Q3 2020.

CHINA

China and Hong Kong equities gained over the week, with the CSI 300 Index rising 4.05% and the Hang Seng Index surging 6.66%. It was reported that Chairman Xi Jinping clearly stated the economic growth target in his speech regarding the 14^th Five-Year Plan, and set the goal of doubling the total economy or per capita income by 2035. As for economic data, the Caixin China Manufacturing PMI and official Services PMI for October were 53.6 and 56.8 respectively, both beating market expectations. In addition, Alibaba reported strong second-quarter results, growing 44% on a YoY basis. Next week, China's October CPI and PPI will be released.

US

With new covid cases in many European countries hitting record highs, France and Germany both rolled out emergency lockdowns, raising fears of the epidemic crippling economic recovery. This resulted in sharp drop in both US and European markets, the S&P 500 index in particular posted its biggest single-day drop since June 2020. The outbreak in the US is also concerning, with daily cases hitting record highs in the Midwest. With less than four days until the election, polls showed Biden maintaining his lead, but markets are still focused on key swing states. As for the earnings season, more than half of the companies in the S&P 500 index have already reported, with 84% of them beating market expectations; in particular the FAAG+M, top 5 companies in the market by market capitalization, reported better than expected quarterly earnings, alongside with a record breaking Q3 US GDP growth of 33% QoQ annualised, beating expectations, drove market recovery on Thursday. Next week, the US will release the Markit Manufacturing PMI, ISM Manufacturing Index, and other relevant employment data, the Federal Reserve will also hold an interest rate meeting.

EUROPE

With the covid epidemic surging in Europe, French President Emmanuel Macron announced on Wednesday that the whole country would be in lockdown again from Friday onwards, and it would last until at least early December this year. European equities crashed in response, German, French, and UK equity indexes fell 8.28%, 6.92%, and 4.75% respectively over the past 5 days ending Thursday. The ECB kept interest rates and its QE plan unchanged after the interest rate meeting, and ECB President Christine Lagarde said the economy was losing momentum faster than expected. The Bank of England will hold an interest rate meeting next week, markets expect the Bank to keep rates unchanged, but should see an increase in monthly asset purchases to £845 billion.

CHINA

Hong Kong equities trailed the sharp fall of global markets on Friday afternoon, but the HSI still managed to close above 24,000, logging in a 2.74% fall over the week. Chinese markets fared better, with the CSI 300 index only slightly slipping 0.49% over the same period. China announced its "14^th Five-Year Plan", key targets include high quality development and transforming into a technological superpower, but the GDP growth target was nowhere to be found. On the other hand, Ant Group's IPO will raise US$34.5 billion, which will be the world's largest IPO ever recorded. Next week, China will release the Caixin Manufacturing PMI

September was a rather quiet month for the credit markets. The Bank of England took the spotlight after reported having discussions over negative interest rates, Governor Andrew Bailey however clarified at a later time that it was purely a policy discussion and does not expect having negative rates in the UK anytime soon. With the global central banks’ keeping their interest rates at historic lows, and negative rates out of the equation for both the UK and the USA, the fixed income market is expected to stay steady with limited inflationary pressure.

The November elections remain the largest risk event for all investment markets. With corrections in the equity markets and capital starting a flight-to-quality, increasing the fixed income portion of one’s portfolio according to the risk parity theory might be an answer to the volatility. We would prefer investment grade bonds for better volatility control, which can help stabilise the portfolio before the election.

The longest serving PM in Japanese history Shinzo Abe stepped down in September, and Yoshihide Suga, former aide of Abe, successfully courted the fragmented factions within the Liberal Democratic Party to become the next PM. According to his public statements and promises, it is widely believed that the policy direction will stay in line with the Abenomics, relieving markets with somewhat reduced uncertainties.

With Suga assuming office, the Japanese government should continue to look for additional sources of growth. It was reported that authorities are looking at the possibilities of easing entry restrictions to further foster economic activities and drive recovery. Moreover, officials have said that the Tokyo Olympics would be “held at any cost”, which could possibly help jumpstart the economy in 2021. Yet, PMIs and other indicators still suggest that the Japanese economy is still under water and the path to recovery remains distant, such that we would not consider overweighting the market before any material changes in the economy is observed.