Please find below our Investment Market Update as at 15th January 2021.
Blue Sky Investment Market Update
“It’s life Jim, but not as we know it!”
This statement attributed to Star Trek* sums up nicely what most of us are experiencing. We are carrying on as best we can in the face of our third major lockdown in a year. It’s not easy and it’s unsettling.
The manifestation of this virus has led to sudden changes in sentiment which has impacted our lives immeasurably. Stay safe everyone, keep your chins up and look out for others.
The past, present and future
We live in the present and are experiencing a roller coaster of emotions right now. Looking forward with any certainty is nigh on impossible. Yet, the investment markets are all about looking forward and trying to anticipate the manifestations of actions in the past, the present and of those which may unfold in the future. Economic data is backward looking and although it grabs headlines, this is old news. Not irrelevant, but investment markets are largely operating in a different time zone.
UK economic data better than expected
So, I am going to give you some old news by way of perspective, just so we can understand how the pandemic has affected the UK economy in general.
It was reported in the FT today that the UK economy shrank by 2.6% in November. This contraction was better than expected as manufacturing and construction grew. Manufacturing output was boosted by stockpiling ahead of the end of the Brexit transition period. Forecasts by economist polled by Reuters had expected a fall of 5.7%.
It’s also good news that the fall was nowhere what we experienced last April when the economy shrank by almost 20%.
As we know, parts of the economy are suffering real pain right now and whilst it must be so difficult, it’s also important we don’t get dragged down into the mire of assuming that most parts of the economy are struggling. They are not! I’ve spoken to a few business clients recently whose business are doing well but they whisper it, because it’s not what people are expecting to hear, and it also doesn’t feel right to shout about business success when people are losing their lives!
The UK economy, impacted by Brexit, is not necessarily representative of how many other nations are faring. For example, industrial production figures have shown that the Eurozone has recovered to levels similar to those in November 2019. Comparatively, industrial output was 4.7% down in the UK.
We are in a new cycle for the economy and markets
I’ll write more about this in my quarterly investment commentary next week but I believe most people agree we are in a new paradigm in so many ways be it socially, environmentally, economically and with regards to the investment markets. As I said in my commentary last week, the outlook for investment markets is rosy but there are sectors which are lagging, others which are attracting a huge amount of money and stimulus, along with those that are showing signs of being overbought.
After next week’s update, each week thereafter, I will be focusing on a theme which we believe will attract significant interest in 2021.
The UK leading the way
The UK may be lagging economically but there is no doubt that we are at or near the front of the queue when it comes to the delivery of the vaccine. The aim is to have all people over the age of 50 vaccinated by the end of March.
Professor Ferguson believes that 25-30% of the population will have been infected by the first and second wave and when added to those that have caught it in this wave, it is expected that this alone will reduce transmission rates significantly. Add in the vaccination programme and it would appear that this virus is being squeezed firmly from both ends.
Other market news
- In the US, Joe Biden has unveiled a $1.9 trillion stimulus package that includes $2,000 payments to individuals, $350 billion in state aid and $130 billion to reopen schools.
- The IT giant Infosys is among a number of Indian companies looking to capitalise on new trading arrangements and expand into Britain.
- It is estimated, according to Bloomberg, that 3,000 to 4,000 investment bankers will leave London for Europe. The financial services industry makes up 7% of the economy, and accounts for more than 10% of all tax revenue.
It just shows how confusing all this can be!
I highlighted the economic figures for the UK economy earlier in this piece, yet it just shows how the same news can be spun differently, in this case, by the FT and Bloomberg:
FT: The UK economy on track for double-dip recession as output shrinks in November.
Bloomberg: UK recession eases as GDP declines less than forecast.
Gary and the Investment Team
*Star Trekkin is a 1987 song by British novelty band, ‘The Firm’. It parodies the first television series of Star Trek and prominently features comical voice caricatures of the original Trekcharacters, provided by members of the band, a studio technician and the wife of one of the songwriters. One of the song’s phrases is “It’s life Jim, but not as we know it”.
An awful song but it’s so bad that it may brighten up your day! Listen here!
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.