H1 2020 offers meaningful lessons

So we begin the second half of 2020, leaving behind us two of the most extraordinary calendar quarters in
history. But the difference in experience from an investment perspective versus the general public and most
of the economy could hardly be any more stark. Capital markets suffered the most rapid and one of the
deepest bear markets in Q1, only to be followed by one of the highest ever recorded quarterly stock
market gains in history (please see the table of asset class returns in the second article). The general public,
and the economy in general, on the other hand spent Q2 bearing the full impact of the COVID-19
lockdowns. We review the last quarter in the context of the year so far in our next article: Walking the
tightrope: a quarter in review, but most investors with globally-diversified investments would probably agree
that as things stand right now, their portfolios have experienced a much better time than they have had


Walking the tightrope: a quarter in review

We are halfway through the most disturbing year in generations and that much-used word won’t go away:
unprecedented. Over the course of the first quarter, it became steadily more probable that the coronavirus
crisis that had started in China would engulf everything around us. In late February, stock markets finally
faced up to the inevitable and nose-dived. Investors’ mad dash for the exit accelerated throughout March,
turning the sell-off into a sell-out of tradeable financial assets, resulting in the most rapid stock market crash
on record.

In Q2, the global lockdown fears that had pushed equities off a cliff became reality and the world economy
followed stock markets, falling into the fastest and deepest recession in history. And yet, once central banks
pledged open-ended amounts of emergency liquidity to capital markets, the ‘dash for cash’ ended just as
abruptly. Global stock markets regained their composure and climbed higher, based on the insight that
Q1’s illiquidity fears had driven markets lower than even a severe recession would justify.


For China as a superpower, global disapproval comes with the territory

The national security law that China imposed on Hong Kong this week might be Beijing’s boldest political
decision in years. For some time, the Communist Party has been chipping away at the “one country, two
systems” principle contained in the 1984 Sino-British Joint Declaration. It has now smashed it to pieces in
one fell swoop. By granting itself sweeping powers to imprison Hong Kong citizens for life over vague
sedition charges, Beijing has declared (not just to Hong Kong but the world) that there is one country, one
system, one party.

State media has portrayed the law as a necessary response to unrest, targeting only an extreme minority.
But, as demonstrated by the millions in the streets and a landslide victory in November’s local elections,
pro-democracy activists have majority support. Those activists are well aware what the law means for their
own movement. Pro-democracy group Demosisto has now disbanded, and one activist has skipped bail and
fled the city, fearing his own safety.

Read the full commentary here