The Tantallon India Fund closed 5.64% higher in July as market sentiment and risk aversion waxed and waned between heightened concerns over further Covid-19 outbreaks and potential lockdowns compromising the real economy, buffered by expectations of even more aggressive policy relief and stimulus that would be supportive of underlying asset prices.

The tug-of-war being played out in real-time captures the re-rating of tech, e-commerce and the new “green” superstars on one hand, against the palpable weakness in the US dollar on the other. The weakness is, in part, due to the policy actions of the US Federal Reserve, but primarily due to markets starting to internalise concerns on rampant Covid-19 infections in the US; myriad policy mis-steps by Congress; the White House and China indulging in cynical brinksmanship ahead of the elections in November; a burgeoning deficit as the spending spigot remains open; and falling real bond yields juxtaposed against the tailwind for gold.

For the Covid-19 pandemic, our top-down view remains that localised lockdowns will likely be employed to manage resurgent infections globally, creating a lingering drag on employment, consumer and business confidence, and spending. We believe a sustained global economic recovery is several quarters away, that we should not extrapolate the “re-stocking bounce” off lockdown-impaired economic activity, and that the structurally weaker outlook for the US dollar and accommodative central bankers globally will likely sustain the rerating in non-US dollar risk assets.

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