- Global equity markets remain upbeat on hopes of an effective and successful global vaccine deployment programme
- In the US, President Trump still refuses to concede the election, creating political turmoil
- In the UK, the Chancellor asserts that the country will not be bullied into a bad Brexit deal as borrowing for October hits a record high
- The year continues to show just how important science and technology are in dealing with issues such as Covid-19
- The financial markets sense a global recovery in 2021 – positive news for risk assets
Global equity markets have remained upbeat throughout the pandemic, buoyed by hopes of a vaccine. Although there are now a number of logistical challenges (in terms of storage and deployment) to overcome, announcements recently made by Pfizer/BioNTech and now Moderna are more than encouraging: phase-3 clinical trials have shown protection rates of well over 90% against the virus.
It should, however, be pointed out that neither producer is certain that their vaccine will stop the spread of coronavirus. Nor do they know if it will lessen the severity of the infection in vaccinated people who succumb to it. Nevertheless, all companies are hopeful of securing the necessary regulatory approvals by the end of the year, with a view to deployment in early 2021.
This has obviously delivered a tremendous boost to the stock markets – particularly for those sectors that have been hard-hit by the pandemic. We now have some grounds for optimism: the stringent government controls that have been in force for many months will eventually be lifted, and this is likely to improve investor confidence significantly.
But governments – on advice from their scientific advisers – are likely to remain vigilant for some time to come: it will take time to vaccinate enough people to make any real difference to the spread of the disease, and early deployment is likely to be hampered by logistical challenges.
Despite this positive news, the virus is continuing to prove stubborn as winter gets under way: the WHO has recorded over 55 million cases worldwide, and some 1.3 million people have now died of Covid-19. The US remains the country with the most cases and fatalities, followed by India and Brazil.
The other topic that is still making news headlines around the world is Donald Trump’s refusal to concede the presidential election. Most recently, a federal judge in Pennsylvania dismissed a lawsuit from the Trump campaign that sought to invalidate millions of mail-in votes in the battleground state. Hopes are fading fast for any attempt to secure a second term, and despite the lawsuits that he continues to file, it is almost certain that Joe Biden will be the next occupant of the White House on 20 January next year.
In the UK, the Brexit saga continues with Chancellor Sunak cautioning that the UK will not be bullied into a bad deal, despite the impact of the virus. Should the two sides fail to reach an agreement, he warned, it will be due to the European Union’s failure to compromise. This came on the back of news that government borrowing in October had hit a record high for the month.
Indeed, borrowing in October hit £22.3 billion – the highest figure for that month since records began in 1993. And government borrowing since April has skyrocketed to £214.9 billion – £169.1 billion more than a year ago. Needless to say, the pandemic is behind this rise in government borrowing, and could even lead the UK into a double-dip recession as this latest round of lockdowns takes its toll.
The second wave of the pandemic has been a further blow to the British economy and news that UK consumer confidence sank to a six-month low in November has triggered another bout of pessimism. But regular reports about the imminent availability of vaccines should nurture consumer sentiment over the coming months.
The markets obviously want to trade higher on positive news. This, combined with the Biden victory and the significant news that vaccines are on their way, has triggered the start of a cyclical rally. The recent surge in the share prices of value stocks and a rise in US Treasury yields (coinciding with the vaccine announcements) provide us with a fairly clear indication that the market will widen out over time.
The only danger now is that the rolling news regarding new Covid cases worldwide will have a short-term negative impact. Over the coming weeks, a tiered system in England is likely to replace the current lockdown and with any luck, measures should be relaxed sufficiently to allow families to celebrate Christmas and the New Year together.
As far as the financial markets are concerned, this year has demonstrated the importance of science and technology in dealing with events such as this one. We have finally understood the primacy of health over wealth, and of protecting the environment. Obviously, we can continue to seek out sensible risk-adjusted investment returns, but Covid has taught us some key lessons: we should appreciate even the smallest things and act as responsible custodians of the planet so we can leave it in good shape for forthcoming generations.
Over the last few weeks, the equity markets have sensed that an economic recovery is not far off, and our opinion is very much aligned with them. So with central bank policy remaining accommodative, we believe that global equities will continue to react positively throughout 2021. Similarly, with several vaccines now in the final stages of development, the widening out of the market will continue to provide investment opportunities – in value, growth and thematic options.