Cambridge Weekly 10th August 2020

Living with COVID- settling into an interim ‘new normal’

Compared to the rest of 2020, July proved almost uneventful as global capital markets consolidated strong
gains made during the previous quarter, with only emerging market equities and gold delivering notable
advancements (see returns table further below). At the other end of the scale, poor returns from Japanese
and UK equities confirms the trend of investors preferring long-term growth prospects of the ‘new
economy’, versus short term earnings stability or recovery potential (value) of the ‘old economy’. This has
much to do with the fact that the yield investors could safely earn– until this long-term growth materialises
– is so close to 0% that they much less mind waiting than usual – and not much with concerns over
diminishing recovery potential of value investments.

Unemployment – a tricky economic variable

At the Bank of England’s (BoE) latest meeting last week, a more optimistic than expected short-term
outlook for Britain’s economy emerged. One of the most notable forecasts was its call on employment.
While furlough and other emergency government measures have allowed many to keep their jobs and
paycheques, some fear these policies are just papering over gaping holes in the labour market, and that
when they change or expire the number of jobless Britons will rise sharply.

Property funds not such hot property

Property can be an attractive investment. Like everything else, property prices have their ups and downs,
but investing in ‘real’ assets can appear to hit a sweet spot, relative to financial assets like equities, bonds
or cash. There is enough of a positive yield that holding it is preferable to holding cash, and not so much
price volatility that investors get skittish.

The main problem, as anyone who has tried to buy or sell a house could testify, is that property is hard to
sell – or at least hard to sell quickly. Money tied up in physical property can take months to turn into usable
capital, which can be off-putting for investors – particularly those requiring flexibility in their portfolio.

Read the full commentary here