Hedley Market Commentary - January 2021

Updated: Mar 4

Market Commentary – January 2021

By Neil Worsley, Investment Strategist

So, Farewell to 2020 and what has been for most people a truly miserable year. It is amazing to think, that of all the issues which we should have been concerned about just 12 months ago, Covid 19 did not even feature and yet its impact has been so dramatic and its effects will stay with us for a long time to come.

Although the world has been gripped by the pandemic for much of the past year, some parts of the globe have coped better than others. Many countries in Asia, for example, managed to keep the human impact under some control which in turn had a smaller negative influence on their economies, while much of the western world struggled to maintain control of the spread which resulted in a devasting human and financial outcome. Notwithstanding the havoc wreaked across the world, the outcome for financial markets was much less severe than could have been anticipated only a few months ago as daily life changed, possibly forever.

As the pandemic took hold and lockdowns were introduced, it soon became clear that technology was going to be a major beneficiary of the changes to daily routines. Meetings and office connections were soon taking place over the internet, online shopping was the new normal and online takeaways were the new eating out. Although the trends in these areas has been progressing for some time the onset of the pandemic hastened their development and it is likely to be a permanent feature. This does of course pose the question of what our towns and infrastructure will look like over the next few years and we can already see the negative aspects unfolding on our high streets as fewer people travel to work or become accustomed to online shopping. There is no question that many of these changes are now permanent and it may well be that the next big investment opportunity may come from the reshaping of the ‘old world’ rather than the development of the ‘new’.

Aside from the pandemic, other momentous issues took place in 2020 which were, in themselves, important but overshadowed by events. The US elections in November ushered in a change of Presidency which will likely have both domestic and global consequences over the next 4 years. The tax giveaways and free spending under the Trump presidency which propelled the US economy are likely to be replaced by a more prudent President Biden with tax hikes for the better off and a more careful spending regime. The global institutions are also expected to see a more ‘normalised’ approach as Biden ditches the America First policy to embrace his western allies and bring some leadership back to these organisations. This in itself could cause some uncertainty as especially China and Russia could see a more combative America which will not be as tolerant against human rights abuses or trade freedoms.

In the furore of other events, the Brexit trade agreement was made at the eleventh hour, recording barely a ripple in financial markets. What could have been regarded as a momentous event was somewhat overshadowed and we will wait and see what impact this may have on the UK and wider European economies as the effects unfold. However, from a UK perspective, the continued uncertainty is now removed and may ultimately provide for a healthier investment backdrop.

In terms of financial markets, many global equity markets have produced reasonable returns spurred on by the rerating of technology stocks counterbalancing the decline of cyclical areas. This has seen decent rates of returns in the US and parts of the Far East while the likes of UK equities are still well down over the past 12 months, with its heavier index weighting of financials and oil sectors. However, over the coming year, with a vaccine now being rolled out and with Brexit uncertainty removed there is just the possibility that we could see some medium term rotation into unloved sectors of the market as the economy begins its much awaited recovery.

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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