UK: Suitable for retail investors. Rest of Europe and Singapore: For sophisticated investors only.

Between the linesMulti-asset investment thinking from the Quilter Investors team.

10Week

Tesla back in driving seatTesla shares powered back some 11% on Monday (2 Mar) as confidence returned after a major week of losses, leaving the shares up around 240% over the last six months or so.

Last week, Tesla took a hit as the National Transportation Safety Board criticised its Autopilot systems at a Washington hearing. The Board blamed Autopilot inadequacies, among other things, for a fatal Model X crash in California in 2018.

Investors also turned skittish when analysts began to downgrade the stock and the news emerged that new Tesla registrations in China fell nearly 50% in January from the month before.

Monday’s gains came on the back of rumours that Tesla is urging its US sales team to deliver another record quarter. It has so far forecast over 500,000 deliveries for 2020, but the US federal tax credit for Tesla buyers expired at the end of 2019.

UK growth spurtThe UK private sector reported continued growth in February, helped by the manufacturing sector reaching a 10-month high in February as domestic demand improved and political uncertainty reduced.

Latest figures from the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI), which combines services and manufacturing, reached 53.0 in February, slightly lower than the 16-month high of 53.3 recorded in January; anything above 50 indicates an expansion.

UK manufacturing PMI reached 51.7 in February, the first time it has passed the neutral 50 mark since April 2019. However, the latest figures noted that supply-chain disruptions, driven by the coronavirus outbreak, were emerging with delays of raw material deliveries and rising input costs.

Meanwhile, UK services PMI recorded a slight dip from January at 53.2 but it is the second-highest reading since September 2018.

Valley of the damnedMining firm Anglo American’s plans to expand its Minas-Rio facility in Brazil, including raising the height of a dam, is being opposed by local state prosecutors.

Anglo American received a licence in December allowing it to increase the facility’s total capacity to 26.5 million tonnes of iron ore a year, and to increase the height of a ‘tailings’ dam from 40 metres to 49 metres.

However, prosecutors for the state of Minas Gerais, where the mining complex is located, have filed a lawsuit requesting the licence be suspended until three communities downstream from the dam are relocated.

The move follows the Vale dam disaster in January 2019, which killed 272 people after a mudflow swallowed a village when the dam collapsed. Following the disaster, the state passed a law to change mining rules, which forms the basis of the lawsuit.

Credit: Anglo American Credit: jetcityimage/iStock

Central banks attempt to ease markets’ virus symptomsInvestment markets globally received a boost from the US Federal Reserve’s surprise interest rate cut. Meanwhile, G7 finance ministers issued positive words around monetary support should the coronavirus outbreak continue to impact global growth.

On Tuesday (3 Mar) the US Federal Reserve (Fed) cut the Fed Funds Rate by 50 basis

points (bps) to 1-1.25% as the coronavirus “poses evolving risks to economic activity”.

The Bank of England has said it will continue to monitor developments and was working closely with international partners, while the Bank of Japan said it would strive to provide ample liquidity through monetary policy action. Australia, Malaysia and Canada also cut interest rates as a result of the outbreak.

G7 Finance Ministers Summit, Credit: skynews.com

Meanwhile, the finance ministers of the G7 released a joint statement on Tuesday pledging their readiness to deploy fiscal measures.

Hinesh Patel, portfolio manager at Quilter Investors, says: “The Fed rate cut, and growing expectations of finance ministers and central banks have provided short-term relief for markets that were struggling to find a floor.

“The fundamentals continue to be less positive on the macroeconomic front. But whilst this is worrisome, when activity falls off a cliff the rebound is usually very strong and rapid.”

He added: “Headlines are dominated by the potential impact of the virus to companies and global growth forecasts have been downgraded.

“However, while there is likely to be more volatility ahead, monetary stimulus is likely to last much longer than the virus.”

“History shows it’s best not to fight the Fed - it’s all about staying invested for the longer-term, rather than trying to `time’ markets on short-term noise,” he continued.

UK: Suitable for retail investors. Rest of Europe and Singapore: For sophisticated investors only.

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...when activity falls off a cliff the rebound is usually very strong and rapid.

Chart of the weekSlowing down: The Organisation for Economic Co-operation and Development (OECD) has cut its global growth forecast as the coronavirus continues to spread outside China. While the full economic fallout is yet to be determined, the OECD predicts a 0.5 percentage point hit in 2020.

MAN of the hourShares in MAN, the truck maker majority owned by Volkswagen’s (VW) Traton division, surged more than 30% last Friday (28 Feb) while shares in Audi jumped close to 28% on the same day as Volkswagen announced plans to ‘squeeze out’ minority shareholders and consolidate both businesses.

The news sent ripples round the European auto sector with shares in VW, Traton and Porsche – VW’s majority shareholder – also making modest ground on Friday morning. VW now plans to buy out the minority shareholders at Audi, its biggest profit contributor, where it already owns 99.6% of the shares. Meanwhile, its truck division, Traton plans to buy the 5.64% it doesn’t already own in the German truck and bus maker MAN.

Although Volkswagen reported strong growth in 2019 sales and earnings last week, it warned that its 2020 forecasts faced uncertainty from geopolitics and the impact of the coronavirus.

Source: OECD/Statista.com.

Hinesh Patel, portfolio manager, Quilter Investors.

Important informationPast performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. The performance data do not take account of the commissions and costs incurred on the issue and redemption of shares. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter Investors Limited (“Quilter Investors”), Millennium Bridge House, 2 Lambeth Hill, London, England, EC4V 4AJ. Quilter Investors is registered in England and Wales (number: 04227837) and is authorised and regulated by the Financial Conduct Authority (FRN: 208543).

This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document.

Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Quilter Investors as a result of using different assumptions and criteria.

Quilter Investors is not licensed or regulated by the Monetary Authority of Singapore (“MAS”) in Singapore. This document has not been reviewed by MAS.

QIL-095-20/220-0105/SK18218

GDP growth forecast for the world’s largest economies in 2020

US consumers shop before they dropShares in the US wholesale business Costco rallied almost 10% on Monday (2 Mar) after shoppers flooded stores in the first concrete signs of virus-induced ‘panic buying’.

Warnings from the Centers for Disease Control and Prevention calling for US citizens to prepare for the outbreak saw shelves being stripped of toilet paper, bottled water and other essentials in major retailers like Costco.

US retailers have seen a spike in sales of household items like hand sanitiser, face masks and cases of bottled water in recent weeks while sales of ‘shelf-stable’ items like fruit snacks, dried beans and pretzels are also rising. This suggests shoppers are shifting from prevention and preparedness products to longer-lasting grocery items, such as canned goods and frozen vegetables.

Credit: Roman Korotkov/Shutterstock

Credit: shaunl/iStock

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