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29 May 2020

Anticipated Return of the UK High Street 

James Rowbury, Investment Research Coordinator

UK markets have been making consistent gains over the past week for the first time in a while, as investors have returned from the bank holiday with optimism. The largest contributors to increases in UK index values have been travel stocks, as Spain has announced that it would remove travel restrictions and from 1st July and no longer require travellers to quarantine for 14 days. Budget airline easyJet has soared 28.74% and British Airways parent International Consolidated Airlines has gained 19.55% last week.

UK Prime Minister Boris Johnson announced the second step of easing lockdown measures in England on Thursday. Some non-essential shops -fashion stores, betting shops, charity shops, and retail spaces in cultural and tourism sites - will be allowed to open from 15th June, with primary schools in England being permitted to reopen from next week. Investors have met the news positively, as reopening of businesses has been long awaited and shows much needed signs towards a rebound in the economy.

It will be interesting to see whether consumers will be hesitant to return to the high street, discretionary spending will likely be down, while concerns for safety will be at the forefront of people’s minds. The Cboe UK 100 has risen 3.76% in the last week, as investors were focussed on reduction of lockdown measures.

Globally markets have also been steadily progressing despite the rising tensions between the US and China. China has formally approved its decision to impose national security laws in Hong Kong by potentially implementing them directly into Basic Law and bypassing Hong Kong’s Legislative Council thus threatening Hong Kong’s ability to pass its own laws.

The US has responded by declaring Hong Kong is no longer autonomous from China, which endangers the territory’s position as a global financial hub. The declaration threatens Hong Kong’s special trading status which, if revoked, could mean stricter tariffs and a headwind to its trading privileges. However, the US is yet to announce what measures it will take in response to China’s actions.

The US S&P500 advanced 2.81% over the past week, as investors reacted positively to the easing of lockdowns worldwide. Meanwhile, Hong Kong’s Hang Seng has risen by 0.83% and Japan’s Nikkei 225 has soared 7.47%.

In the 12 weeks to mid-May, grocery sales rose by 14.3% in the UK, which is the fastest pace ever recorded, as people stocked up on groceries due to the pandemic. Yet, since the lockdown began, store visits were 24% lower, but spending per trip rose by 45%. 

Bradford-headquartered Morrisons has been one of the beneficiaries of the trend. Online sales in the industry have increased by 75% and more new online customers have been acquired than in the last five years. Morrisons managed to take advantage of the rise in online shopping by extending their home delivery services, which have seen a two-time increase in the number of home delivery slots. Despite this, cost headwinds and lower footfall in stores put a ceiling on the revenues of the industry’s traditional store model. The share price of Morrisons fell by 1.54% in the last month.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned. 
 
Anticipated Return of the UK High Street 
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