At March lows, there was value on display in the stock market. Since then though we’ve had quite an astonishing rally. There has been more share price appreciation in the past two months than you might expect over a five year period.

Yet rarely has global financial health been more fragile. Rarely has uncertainty been greater. Even if societies rapidly return to normality all around the world and COVID-19 is forever consigned to the history books, a huge amount of debt has been added to an already creaking financial system. This makes me wonder if the recent rally is pricing in the best case scenario.

The obvious answer is nobody knows, but the above is telling me to tread carefully and be more discerning than ever when it comes to stock selection.

Is the summer sun lulling us into a false sense of complacency? A poll in the papers over the weekend suggests that two out of three workers think the economic impact of this lengthy lockdown will not affect them. And yet official figures revealed the economy shrank by more than a fifth during the first full month of lockdown. That’s the biggest fall on record - surely it won’t be without cost?

GMO’s latest quarterly notes that “the current P/E on the U.S. market is in the top 10% of its history”. That is a striking contrast to the economic and social backdrop. But then again, there is that well worn phrase: markets can stay irrational longer than you can stay solvent… Add to the mix that monetary policy wildcard - a truly staggering amount of money being printed and spent by governments and central banks around the world in a bid to stem the pain of this pandemic - and who knows how this all shakes out...

Either way, there are always canny investments to be made. Not everything has recovered at the same rate. There are still pockets of value out there. Indeed, some high quality value stocks appear to be anomalously cheap...

City of London Investment Group (LON:CLIG)

  • Share price: 348p
  • Market cap: £94.02m
  • Quality Rank: 77
  • Forecast yield: 8%

Given the above uncertainty perhaps now is not the best time to be considering an emerging markets closed-end funds specialist. There is a case to be made purely on valuation grounds though.

These cheap valuations afford a margin of safety in…

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