Insights

Currency markets fell into turmoil in October, with a terrifying resurgence in global infections and a tightening US election race forcing investors to play some defense. The defensive Japanese yen was the best performer alongside the US dollar, as markets gravitated towards safe haven assets.

The British pound performed well too, drawing strength from signs that a Brexit deal may be within reach. The euro was not as fortunate, though. It lost substantial ground as most of the Eurozone went back into partial lockdowns, sparking fears of a double-dip recession. But the worst performer was the Australian dollar, which suffered amid the broader cautious mood and speculation for an imminent RBA rate cut.

Finally, gold prices were hit by a double whammy of a stronger dollar and higher bond yields to close the month marginally lower. Covid-19 is responsible for the prolonged stress, agitation and uncertainty in the society and the markets but also for highlighting the present polarisation in society. People with opposite views fight over the necessity of lockdowns, the effectiveness of face masks and even the existence of Covid-19 altogether.

Moreover, religious polarisation was evident in October through the resurgence of terrorism, following the publication of Islam-mocking cartoons, which highlights the absence of any common understanding, respect and tolerance in the two extremes. In the US, political polarisation manifested itself through a wider gap between the opposing beliefs of Republican and Democrat voters which are deep rooted and will persist in the foreseeable future irrespective of who wins the US elections.

The mechanics and to which extent the existence of polarisation affects the markets is complex, but as stated before, we believe that the markets mirror to a great extent what is happening in the society. Overall, the trading environment during October continued with unstable, at times inflated, short-lived price movements and dissonant trading signals. The Fund managed to navigate through effectively during most of October, but losses suffered during the last week of the month managed to interrupt its consecutive four-month NAV increase.