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Investment strategy
August 22, 2021
2 mins

Reviewing US, UK and China versus rising COVID prevalence

August 22, 2021
2 mins
David Bailin
Chief Investment Officer and Global Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist
SUMMARY

The rise of Covid and regulatory actions are impacting markets, but we think some concerns are overstated while others are underappreciated. We offer recommendations and delineate trends likely to impact key markets here.


US: Rising rates of the Covid Delta variant are putting a damper on the recovery stateside, for now. We have seen a decline in commuting and travel activity in the US, while local retail traffic has continued to improve.

We expect that the impact of Covid will continue to grow across the US over the next 6 to 8 weeks impacting school opening schedules as well as “back to office” plans for companies.

China: The Chinese economy is slowing due to its response to the Delta outbreak. Beijing has handled the pandemic much differently than the West, imposing strict regional lockdowns following even the most limited of COVID flare-ups.

With a much lower vaccination rate and available vaccines that are less effective against COVID, China’s COVID prevention efforts are likely to have a more negative impact on its domestic economy than experienced in the West. The second half of the year should see a decline in China’s growth rates.

UK: The British market is seeing rising share buybacks, dividend increases and M&A activity. We went overweight UK equities in November 2020 and added more to our overweight in February. The UK market has risen 11.2% so far this year and 17.2% over the past 12 months.

However, it is still 7% below the pre-COVID high and 10% below the all-time high. In addition to a 60% increase in EPS this year, a key reason for our overweight position is the low relative market valuation of 13X. There are now clear catalysts for value to be unlocked, with the sharp rise in share buyback activity, companies resuming dividend payments and many raising their dividend payouts.

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