The Lowdown │ Global Markets to 1 January 2021

The Lowdown Global Markets to 1 January 2021

Published January 4, 2021


  • Global equity markets soar in 2020 – despite the pandemic.
  • Wall Street records impressive returns throughout the year, with technology leading the way.
  • The Oxford-AstraZeneca vaccine is approved just as Covid cases surge and more regions move into Tier 4.
  • After years of negotiation, Boris “gets Brexit done”.
  • As the global economy recovery gets under way and the vaccination campaign gathers pace, 2021 looks like being another good year for global equities.

Global Market Summary

Despite a health crisis that saw huge sections of the global economy shut down, and despite the worst slump in global activity in peacetime with governments spending billions of pounds on supporting workers and keeping people in employment, global stock markets actually soared throughout 2020.
Wall Street in particular recorded the most oppressive returns: the tech-heavy NASDAQ 100 Index gained over 47%, while the wider S&P 500 Indexed registered a rise of 16%. More widely, the MSCI All Country World Index (which tracks a basket of global equities) rallied by over 14%.
The FTSE 100 Index, however, has weightings in a number of pandemic-hit sectors such as oil, mining and banking, as well as the airline industry. Consequently, it suffered its worst year since the financial crisis, ending the year down 14%. That said, the UK market – having underperformed relative to its global peers – now looks extremely cheap in valuation terms compared with a number of global stocks.
Over the course of an extremely challenging year, an asset allocation to high-quality fixed income in balanced or more cautious portfolios proved to be worthwhile – given the safe-haven qualities of this asset class in periods of crisis and higher levels of volatility. Indeed, the Bloomberg Barclays Global Bond Index delivered total returns of about 9% for the year.
The global bond markets appear to have a more challenging path ahead of them: higher rates and inflationary pressures will most likely start to build up as the broader economy starts to pick up in the second half of this year.
As the festive season got under way in the UK, the picture was somewhat nuanced. News broke that a more contagious variant of the virus was spreading much more rampantly in certain parts of the country. Consequently, the majority of England was moved into tier 4, the highest Covid restrictions level.
The better news was that the Oxford-AstraZeneca vaccine has now been approved for use in the UK. Vaccination is scheduled to begin on Monday 4 January and priority groups have already been identified: care home residents, the over 80s and health and care workers.
Although this is extremely positive news, it is only once at least 60% of the population has been immunised that we are likely to see an easing of restrictions and an improvement in our lifestyle.
In the US, leading infectious disease specialist Dr. Anthony Fauci has predicted that the country will achieve enough in the way of collective Covid-19 immunity through vaccinations for it to return to “some semblance of normality” by autumn 2021.
China, meanwhile, has approved its own Covid-19 vaccine developed by state-owned pharmaceutical giant Sinopharm, and a vaccination programme for the general public is already under way.
In the UK, the Brexit saga has finally concluded. After one very hostile referendum, two general elections, three prime ministers and numerous years of negotiation, the UK and the European Union finally struck a deal on Christmas Eve – just days before the end of the transition period.
Neither party, it would seem, was prepared to suffer the effects of a no-deal Brexit while the world is still grappling with coronavirus. Threats and counterthreats were put to one side and an eleventh-hour agreement was reached. A number of detractors have already labelled it a “bare minimum Brexit deal”, but it remains a deal nonetheless.
In the days that followed, the UK’s leading share index closed at its highest level since the start of the pandemic back in March 2020. Similarly, sterling reacted positively, trading just below its 2020 peak against the US dollar, albeit significantly below its pre-referendum levels of June 2016.
The Brexit deal resolution was passed by the House of Commons by 521 votes to 73 before passing all stages in the Lords without amendment.
There can be no doubt that the UK economy and its domestic market are still set for a bumpy ride as new rules come into force and the country sets about negotiating new trade deals with its global partners. 2020 was a devastating year for the global economy and humanity more generally with just over 82 million confirmed cases of Covid-19 and more than 1.8 million fatalities worldwide. The mass immunisation programmes that are just getting under way will play a key role in helping us to recover from this pandemic and return to normal life.
As far as the financial markets in 2021 are concerned, governments and central banks will continue to respond aggressively to the effects of Covid-19 – the virus will remain part of our lives for some time to come.
Both equity and bond markets have kicked off the new year at elevated levels. The recovery that has been under way since March 2020 has been quite phenomenal: indeed, November was the strongest ever month for global equities, just a few months after the end of the shortest bear market in history.
Consequently, those global investors who held their nerve throughout that traumatic period at the start of last year were generously rewarded with double-digit returns by year end.
The buoyant stock markets that we have seen over the last few months are likely to continue for a while longer: the outlook for future global economic growth and profitability is bullish, and is likely to benefit further from the immunisation programmes.
As 2021 gets under way, crystal ball gazers are predicting that a widening out of investors’ appetite for risk assets (equities) will lead to a gentle rotation out of the many “Covid winning” stocks of last year… into more of the cyclical stocks that are sensitive to the global economic recovery.
Similarly, although Wall Street is likely to continue to lead the economic recovery, regions such as Asia and the emerging markets are now looking like very attractive alternatives – particularly if the US dollar continues to weaken and the Federal Reserve Bank remains accommodative.
The shift in global equity market leadership may already be under way, but whatever the outcome, it will be important to continue to support the businesses or leaders of tomorrow, rather than those of the past.
Although 2021 looks like being another strong year for global equities, it will not be without its problems, and a significant pull-back should not be ruled out. But as we saw back in March 2020, although the pandemic continued to ravage our business and personal life for many months after, such pull-backs constitute excellent buying opportunities.