MONTHLY SNAPSHOTOCTOB

ER2020

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M O N T H LY H I G H L I G H T SThe day to day rise in new confirmed COVID-19 cases in many parts of the world, including countries where the spread of the virus had previously been partly brought under control. Renewed lockdowns of varying degrees, contributed to a slowdown in the pace of the recovery in many countries, with the Purchasing Managers’ Index(PMI) sliding 0.3 points to 52.1 in September, ending four consecutive months of increase.

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Figure 1: Q32020 GDP Growth (%)

Global shipping volumes now exceed pre-pandemic levels-led by China, where both exports and imports have picked up sharply in recent months. The number of daily commercial flights recovered to about half of last year’s levels by early August, but has shown no further increase in the month of September and October.

Recent indicators show slowing momentum amid persistently high new daily COVID-19 in

USA cases and elevated political uncertainty, including over the prospectus of additional fiscal stimulus further to 0.7% in August, with real disposable personal incomes contracting by 3.5% on the back of sharply diminished fiscal support.

The number of new daily COVID-19 cases has

moderated in Japan, ushering in a general improvements in economic conditions. Retail sales improved by 4.6% in August, regaining the pre-pandemic level. In September, the services PMI increased 1.9 points to 46.9, while the consumer confidence index increased 3.4% to 32.7.

After a period of limited spread, COVID-19

cases in Europe have been rising sharply. The Euro area composite PMI index declined 1.5 points to 50.4 in September, with the services PMI falling back into contractionary territory.

China continues to be a bright spot in the global economy, with growth improving across several components. GDP expanded 4.9% in Q32020, led by investment and exports. Industrial production and manufacturing sector improving since March. Trade flows firmed in September with imports growing 13.2% and exports up 9.9%

Yields on corporate bonds remained low, sovereign credit ratings have continued to deteriorate, reflecting increasing debt sustainability concerns. While spreads of Emerging Market and Developing Economies debt have narrowed slightly overall in October, the gap between investment grade and high yield borrowers has widened to over 4% points twice its level from the start of the year. Global equity market rebounded in October but remain sensitive to the spread of COVID-19 and the strength of the recovery, particularly in the United States.

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GLOBAL INDICESFigure 3: NASDAQ Index (in $) Figure 4: Nikkei 225 Index (in JPY)

The defensive, bond proxy utilities (+5%), were strong despite a surge higher in long rates. Technology (-5.1%) and Energy (-4.4%) were the laggards. Financials declined a modest 0.8% however, regional banks were amongst the top-performing industries. 82% of corporations have reported EPS above estimates includes Consumer Staples(100%), Health Care(100%) and Industrials (50%), above 5 year average of 61%

At the end of October 2020 Tadawul All shares Index closed at 7,907.72 points, decreasing by 391.36 (4.6%) points over the close of previous months. Consumer Durables and Apparels index drops by 18%, Diversified Financials Index down by 17.8% and Media and Consumer services indices declining by 14.7%. The small cap software services sectors gained 11% followed by utilities and food and staples retailing indices by 8.4% and 3.3% respectively.

October saw shares fall in the Eurozone as several countries reintroduced lockdowns amidst rising COVID-19 infection rates. IT market saw the steepest falls. The Eurozone economy expanded by 12.7% in the third quarter of 2020 as the activity rebounded over the summer. With many earning release in October, Europe’s biggest companies, from cement makers to car manufacturers to engineering firms and airlines warned of weaker margins.

Japan share market index price drop down at the end of October, following an overnight Wall Street decline, amid renewed concerns over the pace of the global economic recovery from the pandemic after spike in COVID-19 infection in the both the US and Europe. Total 24 out of 33 industry categories of Index ended into red territory with Air Transportation, Mining, Rubber products were notable losers while Fishery, Agriculture and Forestry were notable gainers

The Hong Kong market rebounded in October in response to China’s expected economic recovery. The Hang Seng Index(HSI) rose by 2.8%. Information Technology was the best performer(+12.8%), while Telecommunications fared the worst(-4.4%). Funds raised through IPOs for the first ten months of 2020 was $249.1 bn, an increase of 66% Y-o-Y.

Figure 5: Tadawul Index (in SAR) Figure 6: Hang Seng Index (in HKD)

Figure 7: Euro Stoxx 50 Index (in USD)

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BMarkets were volatile in October, with mixed performance from bonds. Corporate bonds as compared to Government bonds held up well overall. Concerns around COVID-19 were heightened. An increase of cases in Europe resulted in reintroduction of lockdowns in Germany and France toward month-end and case numbers remained elevated in the US. The middle of the month was positive over a progress in stimulus package. Democrat presidential candidate Joe Biden, who favors a large stimulus, continued to lead in the polls. Sentiment reversed sharply in the last week of the month, on concerns over COVID-19, with the US dollar gaining against the euro (0.5% M-o-M to 0.8562Euro per Dollar) and finishing slightly higher on the month.

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US Eurozone Germany Italy

Italy’s 10-year yield dropped to 0.76%. The uncertainty around the Brexit sovereign bond yield rose in October. The UK 10-year yield was 3bps higher at 0.26%. Economic indicators for Europe and the UK pointed to a loss of momentum, with Europe dipping back into contractionary territory.

Conditions in October become more challenging for Australian investors after weakening of Aussie dollar (5.4% against US$) against all major countries in global bonds. The US 10-year Treasury yield rose by 19 basis points (bps) to 0.87%, with the 2-year to 10-year yield curve steepening by 16bps. European 10-year yields fell by 10bps across the board amid the continued resurgence of Covid-19. The heightened risk and uncertainty in the region have prompted buying of risk-free sovereign bonds leading to their yields moving lower into the negative territory. Germany’s 10-year yield finished at -0.63% and France’s at -0.34%. In the “periphery”,

Figure 8: 10 Year Treasury Rate

Corporate bonds outperformed government bonds. US investment grade debt saw a marginal negative total return (local currency), as yields rose, but was comfortably ahead of US Treasuries. Eurozone investment grade returned 0.8%. Corporate bonds held up relatively well amid the sharp reversal in sentiment in the last week of the month.Convertible bonds proved very resilient versus equities. The Thomson Reuters Global Focus index, which measures balanced convertible bonds, registered a positive return in the falling equity market environment. The index returned 0.4% compared to -2.5% for the MSCI World global equity index. Convertible bond valuations became slightly more expensive, albeit from a low base.

Most Frequently Used Fixed Income Indices 1mo QTD YTD 1yr 3yr 5yr 10yrBloomberg Barclays US Aggregate 0.45 0.45 6.32 6.19 5.06 4.08 3.55

Bloomberg Barclays Intermediate US Aggregate 0.17 0.17 4.99 5.08 4.14 3.25 2.89Bloomberg Barclays US Credit 0.22 0.22 6.15 6.66 5.99 5.60 4.88BofA Merrill Lynch 1-3 year Treasury 0.04 0.04 3.01 3.19 2.65 1.81 1.25BofA Merrill Lynch US High BB-B 2% Constrained 0.47 0.47 1.03 3.29 4.42 6.07 6.11FTSE 3 Month T-Bill 0.01 0.01 0.56 0.86 1.62 1.16 0.60FTSE USBIG 0.45 0.45 6.44 6.32 5.15 4.14 3.57

Figure 9: Benchmark Indices

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Figure 10: Unemployment Rate 2020(%)

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FIXED INCOMEJapanese government bond yield rose across the curve- The 10 Year Japanese government bond yield touched highest level for a month to 0.04%, while longer maturity bond yields- such as those on 30 and 40 year instruments- rising to their highest levels by 2bps to 0.625% and 0.650% respectively since early July resulting from positive effect from fiscal and monetary policy.

The European Central bank(ECB)- The President of ECB suggested flooding the financial system with liquidity. Consumer inflation is negative for three consecutive months. In contrast, GDP growth for the third quarter expanded 12.7% from the previous period as lockdown restrictions were eased.

US corporate spreads tightens- Spreads fell 2bp to 126bp owing to very strong demand from Asian investors, particularly in Taiwan. Bank earnings were largely better than expected.

US consumer inflation rose to 1.4% on an annual basis in September- The highest growth rate marked in the series since March and was also fourth successive month of acceleration in the inflation rate since it troughed in May at 0.1%.

UK unemployment rose to its highest level since May 2017- Unemployment rose to 4.5% in the three months to the end of August, a significant pickup from 4.1% in the three months to July. With the chancellor’s furlough scheme due to finish at the end of the month, being replaced by the less generous job support scheme, unemployment is widely expected to rise much further from current levels. The UK 10-year yield was 3bps higher at 0.26%.

China’s first ever direct Government bond auction to US investors attracted record demand- The Chinese government issued a $6bn government bond directly to US investors during the week. The issue was more than four times covered, attracting $27bn of orders, as investors looked to lock into the higher relative yields on offer across a range of maturities.

China’s third-quarter GDP expanded 4.9% Y-o-Y- Continuous recovery from the COVID-19 shock with expansion in consumption, in September, retail sales rose 3.3% Y-o-Y, increase in industrial production by 6.9% Y-o-Y. The yuan is now approaching 6.6 per US dollar, its strongest level since July 2018, supported by firmer guidance from the People’s Bank of China and the recent improvement in domestic economic data.

The Bank of England sounded out banks on the prospect of negative interest rates- The central bank conferred with banks over their readiness to cope with negative interest rates setting a deadline of 12 November for a formal response. At the same time, there are growing expectations that the Bank will raise the size of its monthly bond-purchasing programme, currently set at £745bn

The World Bank forecasts the lowest Asian growth rate for over 50 years- In a sombre assessment of the region’s growth prospects for 2020, the World Bank expects the Asian economy to expand by just 0.9%, which would mark the lowest growth rate since 1967. While the organisation expects China to grow, albeit by only 2%, the rest of the region is likely to contract by 3.5%.

Commodities, as measured by the S&P GSCI Index, registered a negative return. Energy was the weakest component with crude oil falling sharply on concerns over demand related to the coronavirus. Livestock and precious metals also lost ground, though they fell by less than the index. Industrial metals rose, aided by strong gains for copper and zinc, and agricultural commodities posted positive returns.

C O M M O D I T I E S

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Energy August 31, 2020 September 30, 2020 October 31, 2020Coal Australia ($/mt) 50.1 54.6 58.4Coal South Africa ($/mt) 57.4 57.5 61.0Crude Oil, average ($/bbl) 43.4 40.6 39.9Crude Oil, Brent ($/bbl) 44.3 41.1 40.5Crude Oil, Dubai ($/bbl) 43.7 41.1 39.7Natural Gas, Index (2010=100) 45.8 46.1 53.6Natural Gas Europe ($/mmbtu) 2.9 4.0 4.9

Agriculture August 31, 2020 September 30, 2020 October 31, 2020Cocoa ($/kg) 2.35 2.46 2.29Tea, average ($/kg) 3.15 3.08 2.98Tea, Kolkata ($/kg) 4.07 3.86 3.50Coconut Oil ($/mt) 981.00 1,034.00 1,118.00Soybean Meal ($/mt) 375.00 408.00 466.00Rice, Vietnam ($/mt) 448.90 462.70 459.20Wheat, US, SRW ($/mt) 208.90 219.70 245.20

Figure 11: Commodities Price Data

Metals August 31, 2020 September 30, 2020 October 31, 2020Aluminum ($/mt) 1,737.00 1,744.00 1,806.00Copper ($/mt) 6,499.00 6,705.00 6,714.00Iron ore ($/dmt) 121.11 123.80 119.80Lead ($/mt) 1,936.00 1,873.00 7,776.00

The uncertainty created by Covid-19 shows little sign of reduction. Global demand for oil from January to July was 10.5 mb/d below last year’s level. In August, the first impact of the easing of OPEC+ production cuts from 9.7 mb/d to 7.7 mb/d. After 4% drop in 2020, natural gas demand is expected to progressively recover in 2021 as consumption returns close to its pre-crisis level in mature markets, while emerging markets benefits from economic rebound and lower natural gas prices.

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Figure 13: Crude Oil Spot PricesSource % share

Oil 31%

Coal 27%

N. Gas 23%

Nuclear 5%

Hydro 3%

Renewable 11%

Figure 12: Global Energy Mix Q32020

CORPORATE NEWS

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Data-warehousing cloud platform Snowflake jumped 112% in its spectacular first day of trading on the New York Stock Exchange on September 16. At $3.4 bn, it was the largest IPO of the year to date, and the biggest software IPO ever-more than double that of Dell-backed VMware, which raised just under $1 bn in 2007.

Biggest Software IPO Ever Double in Debut

Flipkart is preparing for an IPO overseas by 2021 and expecting a valuation of up to $45-50 bn.Flipkart, which is incorporated in Singapore, is planning it’s listing in the United States, where parent Walmart is headquartered. This could give it access to a large pool of funds.

$45-50 bn in IPO 2021

Tourism is the largest single source of private capital for Hawaii’s economy. In 2019, Hawaii’s tourism economy has recorded visitor spending $17.75 bn an increase of 1.4% Y-o-Y. Hawaii reopens for tourism after national lockdown taking complete precautions.

Figure 14: Number of Visitors

Hawaii officially Reopenfor Tourism

Italy has approved new stimulus package in its 2021 budget to foster an economic rebound from the recession caused by the coronavirus crisis. Expansionary measures in 2021 will total more than 39 bn Euros ($45.7 bn). Along with this, the government has set up a 4 bn Euro fund to compensate companies worst hit by coronavirus lockdowns.

Stimulus Package by Italy

Rolls-Royce looks to raise $2.6 bn

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Figure 15: Revenue ($ bn)Rolls-Royce has announced plans to raise €2 bn in a rescue right issue, as well as drawing in government support for a new debt package of

up to €3 bn, in an attempt to bolster a balance sheet badly hit by the pandemic. Shareholders are being offered 10 shares at 32p each for every three they own, at 41% discount based on the theoretical post-rights price. This helps the Company to improve its liquidity headroom and reduces the balance leverage, meanwhile supporting disciplined execution of investments to ensure maximum value for existing capabilities.

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