Cumberland Advisors Market Commentary – International Equity ETF Q3 Overview and Outlook

Author: William Witherell, Ph.D., Post Date: October 5, 2020

The global economy is expected to have registered a stronger than anticipated rebound in the third quarter with record-breaking growth rates after output collapsed in the first half of the because of the COVID-19 pandemic.

Market Commentary - Cumberland Advisors -  William 'Bill' Witherell - International Equity ETF Q3 Overview and Outlook

The reopening of businesses and the easing of lockdowns and other restrictions in many countries allowed the rapid pickup in output in the early stages of the quarter. Prompt, substantial fiscal and monetary support in most economies, including furlough schemes, jobless benefits, and very easy financial conditions, helped to limit the impact on household incomes and companies and to preserve confidence. Global manufacturing and world goods trade have led the recovery, while services, particularly those requiring social interaction, continue to be strongly affected.

Apart from the trend seen in the Chinese economy and several other Asian economies, the pace of the recovery has faded through the quarter. Some slowdown was expected after the reopening process in the manufacturing sectors was completed. The concerning development is the significant surge in COVID-19 cases in many countries, particularly in Europe, prompting a retightening of restrictions. In some emerging markets the first wave of infections continues to grow. India appears to be experiencing the most rapid spread of the virus. In Latin America, Brazil has the largest number of deaths, and Argentina has sharply rising infections. Europe, Israel, Australia, Canada, and South Korea have all experienced a second wave of cases. Overall, there now are more than 32 million cases in 188 countries and a death toll of around one million. Improvements in treatment and the growing prospect of successful vaccines becoming widely available in 2021 are positive factors going forward.

Being the first to be hit by the pandemic and the first to emerge following a relatively successful curbing of the outbreak, China is the only major economy likely to be able to register a positive growth rate for the current year (+2%). The solid recovery in the world’s second largest economy and its growing demand for imports of both products and raw materials is important for many other economies, particularly those in the region, including South Korea, Taiwan, and Japan.

The pace of the economic recovery in Europe has plateaued towards the end of the quarter, with a second wave of COVID-19 infections occurring with varying strength across the region, hitting Spain, France, and the UK much harder than Germany and Italy. Government policy support has been ample. The largest European economy, that of Germany, has had the strongest economic performance in the quarter. Japan’s economic recovery in the third quarter was more modest than Europe’s, in part because its decline in the second quarter was smaller. It has begun to ease restrictions following a reduction in virus infections. The new prime minister, former Chief Cabinet Secretary Suga, is expected to continue current policies with a strong commitment to pursue the economic reform agenda focusing on improving productivity.

Looking forward to the future, investors are faced with considerable uncertainties about the future course of the pandemic, US election results, and the outcome of the UK/EU negotiations on the exit of the UK from the EU (Brexit). The slowdown in the global recovery will lead to much lower GNP growth rates in the final quarter of this year and into 2021, again except for China and several other Asian economies. The OECD is projecting global GDP growth in 2021 at 5.0%, following a 4.5% decline in the current year.

International equity markets advanced robustly in the first two months of the quarter and then retreated in September, registering about a 6.3% total return gain for the quarter as measured by the MSCI ACWX ex USA Index. Very low interest rates and stimulative fiscal policies are underpinning these markets. Advanced-economy markets outside of North America averaged a gain of 4.8%; but Germany, Sweden, Netherlands, and Japan gained 6.5% or more, as did Canada. Emerging markets averaged about a 9.6% gain, with this figure driven mainly by even stronger returns by China and several other Asian markets (Taiwan, South Korea, and India). In contrast, Latin American markets averaged a declined over the quarter despite a 5.5% gain for Mexico.

We were fortunate to have almost all of the positions in our International Equity ETF portfolio in strongly performing Asian and European markets and Canada and a modest cash position in the third quarter. Going forward, identifying the markets most likely to outperform and monitoring the mentioned downside risks will continue to be very important.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio

Sources: OECD, Oxford Economics,, Barclays Economic Research

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