Hedley Market Commentary - February 2021

Updated: Mar 4

Market Commentary – February 2021

By Neil Worsley, Investment Strategist

Global stock markets produced very mixed performances in 2020, with a range of around minus 15% to plus 20% for the majority of international markets. The outcome reflects the importance of international diversification when investing money today.

In fact, China is set to overtake the United States as the world’s largest economy a few years earlier than anticipated due to the coronavirus pandemic, most analysts now say. On reasonable growth projections the size of China’s economy in USD terms will overtake the US in 2028. If the Chinese currency strengthens further then China could surpass the U.S. two years earlier than anticipated, in 2026.

The U.S. reported last week that gross domestic product in 2020 contracted by 2.3% to $20.93 trillion in current-dollar terms. In contrast, China said its GDP expanded by 2.3% last year to $14.7 trillion, based on an average exchange rate. That puts China’s economy at only $6.2 trillion behind the U.S., down from $7.1 trillion in 2019. This divergence in growth was largely due to the pandemic which has been a much larger blow to the US economy than China’s economy.

Much of China’s recovery last year came from traditional industries such as manufacturing, rather than increased domestic consumption. In 2020, China’s exports rose by 3.6% in $ terms while imports fell by 1.1%. On the other hand, China’s domestic consumption did not recover as quickly as the rest of the economy. However, China is still far behind the US in terms of per capita income, with the US at $63,200 per person and China $11,000.

So why does all this matter? It strongly suggests that, while China has grown very rapidly over the past 30 years, there is still a long way to go before it reaches the levels of income generated by much of Western Europe and North America. This will not only benefit the Chinese economy directly but many of those countries in its sphere.

This is general market commentary from our analyst and should not be interpreted as personal advice to you to make an investment decision

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