The Covid-19 pandemic has produced the most pronounced economic shock in nearly a century.
In 2020, recessions around the world were sharp and deep, with significant supply-chain disruptions at times. That said, perhaps more than in previous recessions, policymakers were aggressive in supporting financial markets and their economies.
While the global economy continues to recover as we head into 2021, the battle between the virus and humanity’s efforts to staunch it continues.
It will be some time before many economies return to their pre-COVID-19 levels of employment and output. This unevenness is reflected in the world’s major economies. China, where control of the pandemic has been more effective, has swiftly returned to near pre-pandemic trend growth. Elsewhere, the virus’s prevalence has been less well-controlled.
Both monetary and fiscal policy will remain supportive in 2021, but the primary risk factor is the pandemic’s fate and path.
What do you think will happen with inflation this year?
In 2021, we agree with commentators who anticipate a bounce in consumer inflation from pandemic lows near 1% to more realistic rates around 2%. This is as spare capacity is used up and the recovery continues. There is a risk markets could confuse this modest reflationary bounce in inflation with the start of a return to a 1970s-type high-inflation era.
Mounting debt loads, extraordinarily easy monetary policy and, in the case of the United States, an explicit assurance that policy will remain accommodative longer than it had in the past have all led to concerns about resurgent inflation. We agree such concerns are premature and unlikely to materialise in 2021. More profligate fiscal spending has the potential to influence inflation psychology, but any such influence would have to more than counteract high levels of unemployment and technology influences to drive up inflation expectations.
What do you think will happen with the bond market this year?
Interest rates and government bond yields that were low before the pandemic are now even lower. We see do not see this changing over the current year and we could see more negative rates. The main driver of this will be central banks bond buying programs. In 2022 we could see some reversion to pre-COVID-19 levels.
What do you think will happen with Global equities this year?
Yet again, disciplined investors were rewarded in 2020 by remaining invested in the stock market despite troubling headlines. We agree with analysis that suggests global equity markets are neither grossly overvalued nor likely to produce such outsized returns going forward. Our outlook for the global equities is positive but modest.
How have your portfolios done?
Our portfolios focus far more on the longer-term view than the shorter term. They do not ignore it, but we focus far more on managing risk than we do reaching for returns. Our portfolios are now more than eight years old and have been getting to the point where they have gone through a full market cycle. As you can see below, they have outperformed the average wealth manager and managed fund over the last eight years:
Over the last year this has also broadly been the case:
All data taken from Financial Express.
You should be aware we will not always outperform. We stick to a set level of risk and refrain from trying to time the markets. Over the short term, this may lead to underperformance. Over the long term, our investment process should help our clients get suitable returns.
Be aware that past performance is not an indicator of future returns and markets can go down as well as up.
Do you need some help with deciding how best to invest? Feel free to book in a free no-obligation chat here.