Investment Focus Update- January 2021
A new America?
On 3rd November the US, with great relief to many, avoided the ‘nightmare scenario’ of a contested election result. Joe Biden and the democrats won enough electoral college votes and easily the largest popular vote in history to lay claim to the White House. Rather predictably but it seemed without much traction or hope, Trump pursued legal recourse to dispute the result.
Welcome stability in the US markets told us everything we need to know about Trump’s chances of remaining in the Oval Office. A leadership vacuum in the world largest economy was a significant risk and an unfounded prediction, as the President Elect wasted no time in making policy announcements and appointing his senior team.
The shape and trajectory the new administration is expected to be kinder and more traditional in style – a return to ‘normal’ politics. However, American foreign policy may not look much different and the inexorable rise of China will require careful negotiation. The ‘China problem’ hasn’t gone away as the US grapples to find a solution to the perceived ‘theft’ of intellectual property.
Perhaps more worrying for investors is the potential for the Biden administration to implement policies less friendly to corporate America. Proposals include raising corporation tax from 21-28% and extending the minimum (US Treasury funded) Medicare age from 60 to 65. Add in the potential for heightened regulation of the banking sector and the horizon looks a little darker.
However, we should remember two things: first that the long-term challenges of China and the USA’s foreign policy remain unchanged and second that the Biden victory was not unexpected. The best fund managers will undoubtedly have factored these points into their stock picking in recent months.
What does a Vaccine mean for investment markets?
In typical style global markets reacted excitedly to the announcement of Pfizer and BioNTech’s ‘90% effective’ vaccine. Questions of distribution and efficacy still need to be answered but overall, this brings a real prospect of a broad-reaching and sustainable return to economic growth in 2021 and beyond.
Major global stock markets rose by over 5% in 24 hours (9th November) reminding us that trying to time or predict the market is a fruitless task. Rather, we focus on funds and fund managers that have a proven ability to achieve excellent long-term performance. The asset mix within our portfolios is designed to absorb the shocks of market volatility and we feel this has been successfully achieved in recent times.
Furlough extension and the UK economy
The UK government’s furlough scheme sees an extension to March 2021, with the self-employed and devolved governments also granted additional support. The headline cost of the Chancellor’s financial support package is now over £200 billion, however there are some key points to make in mitigation:
- The Government is borrowing at astonishingly low rates. Five-year UK government bond yields fell to minus 0.09 % (July). This means investors are effectively paying the government to hold their money.
- 9 in 10 of furloughed workers remain on payroll, meaning the cost of not implementing the scheme would have been higher than the cost of borrowing to fund it. These hard facts go some way to explaining the disconnect between the positivity in the financial markets and the human misery we have experienced over the last 9 months. With the Autumn Budget delayed the Chancellor is no doubt thinking of ways to recoup government spending – watch this space.
To discuss investment planning contact Jon Drysdale – jon.drysdale@pfmdental.co.uk or visit our Financial Planning page for more details. Please note: PFM Dental’s financial advice service is suitable for individuals (or combined family) with investable assets of £500,000 or more. This may comprise of pension and investments.
PFM Dental is authorised and regulated by the Financial Conduct Authority. You are advised that because investment values can fall as well as rise, you may not get back the full amount invested. Past performance is not a guide to future performance.
