26 January 2021
“We’ve learned again that democracy is precious, democracy is fragile and, at this hour my friends, democracy has prevailed.”
The inauguration of Joe Biden, the 46th President of the United States, went ahead as planned on Wednesday 20th January, where he conveyed his wish to move on from the recent siege of Washington DC’s Capitol Hill. Appealing for solidarity, he implored the nation to carve a way forward, by putting America’s “uncivil war” behind them.
Biden proceeded to launch his administration with a bang, reversing many of Donald Trump’s policies on his first day in office. He also signed a flurry of executive orders, including that of rejoining the Paris climate accord, halting the United States’ departure from the World Health Organization, and overturning the travel ban on citizens of Muslim-majority nations entering the US.
Stock markets across the globe saw record highs following the inauguration, appearing to cheer a change in leadership for a much-needed positive economic impact. Biden’s pledge to provide a $1.9 trillion stimulus package to hopefully boost the country’s recovery will undoubtedly have the greatest short-term impact.
That aside, it will take some time for the new administration to establish itself, suggests Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Managed fund.
“We sense that those expecting very rapid progress with respect to the latest fiscal support package could be a little disappointed in the short term – even if more ambitious plans are building in the medium term regarding future initiatives on infrastructure spending, clean energy, the environment and other initiatives designed to deliver an agenda of transformation over the next few years,” he adds.
Chinese markets likewise enjoyed a buoyant week, after data showed that the country is leading the global economic recovery post-COVID-19. Draconian lockdown measures to control the virus, combined with some government stimulus, appear to have worked well, meaning the economy is now gathering pace and approaching pre-pandemic rates, although experts often question the accuracy of China’s economic data.
“China has been the only major economy to grow in 2020. Analysts are now busy revising forecasts of when China is expected to overtake the United States as the world’s largest economy to as early as 2026,” shares Martin Hennecke, Asia Investment Director at St. James’s Place.
Hennecke indicates that there’s no one way of measuring the size of an economy. If based on the most commonly used version (in other words, the ‘nominal GDP’), then the United States is the forerunner. However, if you use a measure that accounts for how expensive things are in different countries (‘purchasing power parity’, according to economists), then China’s economy is the larger of the two.
“My personal take is that reality probably lies somewhere in-between, and that the two economies are of about equal size at present,” adds Hennecke.
Despite having had an upbeat start to the week, European markets were on the back foot on Friday. Data released this week show that lockdowns have left their mark on the region’s economic recovery. According to figures from IHS Markit, business activity in the UK, France and Germany is down compared to December 2020.
In the UK, meanwhile, December retail sales figures reveal that sales fell short of expectations. The most important month for the retail industry led to a rise in volume of only 0.3% versus November.
In terms of the future, there’s some apprehension around the fact that the Chancellor’s rumoured plans to increase the main rate of corporate tax could stifle recovery. On the other hand, Capital Economics implies that any rise would probably be balanced out by further government spending, meaning it wouldn’t have much effect on the economy.
In the meantime, vaccinations across the continent continue to suffer setbacks. Pfizer has momentarily stopped deliveries, due to delays – the result being that parts of Germany, Italy and Spain have had to postpone vaccinations. Although the long-term picture appears more positive, the short-term impact of the postponement led to a subdued atmosphere last week.
It’s common knowledge that all manner of businesses are suffering at the moment. But challenge can nevertheless give way to opportunity, most notably for investors who are willing to look long-term, writes Andrew Pastor from EdgePoint, which co-manages global funds for St. James’s Place.
“During periods of uncertainty, the time horizon of the average investor tends to shrink dramatically. As a result, we think investors today are placing too much emphasis on the near-term prospects of businesses. They’re ignoring many high-quality companies whose next three or six months might be uncertain, but whose next three-to-five years are highly predictable.
“Short-term uncertainty has nothing to do with survivability or growth. We own businesses that we believe will not only survive, but will be much bigger in the future,” Pastor adds.