Global Market Overview – January 2021

 2021 kicked off with yet another historic moment. Mobs of Trump supporters stormed the US Capitol after the then president demanded support for the claim that he, not Biden, was the real election victor. Despite this attempt to overthrow democracy, the US congress confirmed Biden as president of America. Putting Trump in the rear view mirror might now be made even easier since, following the Capitol Riots, Twitter has permanently suspended his account.

Headlines in the UK painted a largely negative picture as COVID cases escalated. Over 68,000 confirmed cases were recorded on the worst single day, and the UK death toll has now surpassed 100,000. These losses are tragic, but we think it’s important to keep in mind that the outlook is much brighter than the current picture. The approval of the Oxford AstraZeneca vaccine is a big step forward. It is cheaper and easier to store than the Pfizer vaccine. The UK vaccine rollout is racing ahead of the rest of Europe, and the ability of COVID to cause further recessions around the world is small and shrinking.

Markets may already have put COVID-19 behind them. Financial headlines have been dominated by the David and Goliath battle between small investors and Wall Street, with GameStop somewhere in the middle. After being hit hard by the pandemic, many institutional investors started shorting the stock. In a bid to get back at the short sellers, small investors came together on Reddit and have inflated it’s price dramatically, costing hedge funds many billions. GameStop, Tesla and Bitcoin are reminders of the froth investors are currently navigating.

Over the course of January, developed market equities were slightly negative, as were most government bonds.

Core views

The recovery is already happening… The world has never seen as much coordinated stimulus as in the past nine months. We believe this sets the stage for a strong economic recovery across the world in 2021. The return to growth will occur at slightly different paces in different places – much of Asia is already back on track, the US should have a vibrant start to the year, with Europe finishing strongly.

The virus won’t derail this growth… Lockdowns are unlikely to be as severe and as widespread as previously. At the same time the vaccine offers a concrete way to end this crisis. Looking at the long term and looking globally, there is more economic good news than bad news – despite how it can feel in the UK at the moment. Positive for credit and equity.

Summary

Investors should try to focus on the fact that investing in the stock market over the long term, is a powerful tool to preserve the purchasing power of their wealth and on ensuring that they have an appropriate asset allocation for the level of risk with which they feel comfortable. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.

 

February 2021

With thanks to Seven Investment Management LLP for their views and market thoughts.
RiverPeak Wealth Limited

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