Performance, November 2020
Coronavirus continues to hit the headlines
Global financial markets were still dancing to the tones of the coronavirus pandemic in November. In the course of the month, the financial markets could listen both to positive and negative tones. It was negative news that the second wave of the infection seemed to have gained serious momentum in many countries – and consequently several countries introduced additional restrictions to contain the dissemination. In several countries, the infection figures are above the level from the first wave. It was positive news that over November we heard positive announcements from two of the huge players within corona vaccine. AstraZeneca, the European giant, and Pfizer, the US giant, announced good results, and all in all the vaccines are just around the corner. The UK was the first country in Europe to announce that it will start vaccination before year-end. The prospects of vaccination as a first step towards more normalised conditions provided a huge backing to the financial markets.
Change of power in the US seems to be on its way despite lawsuits
The present US president Donald Trump’s announcements pointed, as usual, in several directions in the course of November in relation to the impending change of power on 20/1-2021 when Joe Biden will according to plan take over the White House. Donald Trump has in the public area maintained his rhetoric that the election had been rigged - and lawsuits have been launched. But on the internal lines, Trump’s administration in November began to cooperate with the coming administration in relation to the change of power. Moreover, the coming president, Joe Biden, has begun to announce members of his new administration. Among the most prominent names is Janet Yellen, the former Fed governor who has been appointed Minister of Finance. A competent name who has also been in opposition to Donald Trump, which was the reason why she only served one period as gov-ernor of the Federal Reserve.
Global equity markets had a huge boost due to prospects of an economic normalisation in the wake of the roll-out of corona vaccines. Positive news from the pharmaceutical giants AstraZeneca and Pfizer made investors dream about a fast return to more normal economic conditions. Therefore especially cyclical equities within industrials and energy were in heavy demand, but also financials and IT reported a good month. The solid opti-mism resulted in historically sharp equity-price increases, but a decline of the dollar pulled down the return of Danish investors a shade. Nevertheless, November ended at a very high return of just below 10% for global equity markets, in terms of DKK.
Bond yields were in November slightly increasing. November was the month where three pharmaceutical com-panies announced that a corona vaccine is just around the corner. In Denmark, vaccinations are expected to begin in early 2021. In Europe, Brexit negotiations are still pending, and it is an open question whether a solu-tion will be found in 2020. If an agreement is reached between the EU and the UK, it will, seen in isolation, result in slightly rising yields. In the Danish market, auctions of 'flex loan' bonds for the January payment were held. The auctions were generally met with strong investor interest with a resultant marginally overvalued relative valuation. Bond yields were in November somewhat mixed. The more long-term callable bonds generally yielded the highest returns.
Hoping for an early vaccination against Covid-19 and a trend towards a partial normalisation of the economies, we have seen a large inflow of means to the emerging bond markets. The credit spread has narrowed from 4.2 percentage points to 3.8 percentage points for bonds issued in external debt. It was primarily the more risky countries that experienced demand since the slightly more conservative countries are considered somewhat more sensitive towards potentially increasing yields in the US. The rising price of oil and a number of other commodities also supported many of the commodity-exporting countries whereas the deteriorated EURUSD strengthening of approx. 4% put a damper on the more USD-related currencies.
Yield spreads in both investment grade and high yield narrowed considerably in early November in step with the good news about covid-19 vaccinations. Market expectations still point to a continuation of the ECB’s purchases of both government and corporate bonds in 2021, which help keep credit spreads at a low level.