Surprising market recovery signs amidst coronavirus
Coronavirus continues to dominate the headlines as much as ever due to its significant effect on the world’s markets and investor behaviour. But you might be surprised that even within this COVID-19 context, just how positive the outlook is predicted to be and how recovered some aspects of the market are.
Of course, with the global backdrop of widely varying COVID-19 infection rates and vaccination programmes from nation to nation, negative aspects of market doom and gloom have no power to surprise us. It’s the reawakening of economies and the undeniably sunnier, yet still patchy, outlook that perhaps comes as unexpected.
COVID-19 damage predicted to be short-lived
Despite the huge discrepancies across the world in managing coronavirus and the fact that Europe and India are reintroducing lockdowns due to fresh outbreaks of the pandemic, economists have upgraded their growth predictions for this year and next.
The stirring of the economy, much of it brought on by the easing of restrictions, has caused a rise in optimism. So much so, the International Monetary Fund (IMF) has upgraded its forecast for global GDP growth from 5.5% to 6% for 2021 and has slightly increased its forecast for 2022. Furthermore, the IMF expects the damage done by the pandemic to be much shorter lived than that seen after the financial crisis.
UK employment signals confidence
In the UK, we saw hiring increase sharply as businesses reacted swiftly to the lifting of restrictions. A report from KPMG showed the UK permanent placement market growing at its fastest rate in six years, with the latest data from the Office for National Statistics (ONS) revealing more job vacancies, fewer people on furlough and stabilising unemployment.
In February, UK GDP grew 0.4% after falling in January. Furthermore, international trade recovered some of its contraction seen in January. Coupled with increases in both business and consumer confidence, this led to a slight increase in inflation in March of 1%, from February’s 0.7%.
And there is cautious optimism for income investors as UK’s dividend payers start distributing profits as part of a trend of companies reinstating dividends. Good news for those suffering from an income-poor portfolio over the last 12 months.
Stability in EU markets
While EU vaccinations lag behind both the US and UK, European equities continue to perform strongly with the main EU indices hitting record highs that exceed pre-pandemic levels.
In its effort to reassure investors, European Central Bank (ECB) pledged to maintain its asset purchase programme at its current rate and intimated it would leave interest rates unchanged until inflation is close to the official target of 2%, leading to an increase in demand for EU government bonds.
The US is “ready for take-off”
US President Biden’s recent declaration is backed by convincing data that shows US GDP growth, for the first three months of 2021, to be around 6.4%, the fastest Q1 growth since 1984. This coupled with restrictions loosening and an increase in government spending, indicates a strong outlook for US growth. Interest rates and the bond purchasing scheme remain unchanged however – until employment figures rise and the inflation target of 2% is met.
China in the recovery lead
China was the only major economy to see GDP grow in 2020 and is likely to provide a leading indicator for other countries’ recoveries. Although it is yet to be seen whether the fast pace of growth can be sustained, currently there are no signs of it slowing down; China’s GDP in Q1 increased by 18.3%.
However, Chinese equity markets in 2021 are poor, following the strong run in 2020. The CSI 300 index hit an all-time high in February but has since fallen around 15%; making it down 5% so far this year.
Technology stocks
As we cited in last month’s commentary, technology stocks are set to continually grow due to the light years travelled into digital by so many companies during lockdowns.
Producers of microchips were some of the best performing stocks in 2020 with a lockdown-fuelled boom in online activity and demand for connected devices. It won’t come as any surprise that Netflix, and many big US tech companies, had a good 2020. But after several quarters of record growth, Netflix subscriber figures have now slowed; although shares still remain up around 38% from what they were pre-pandemic.
The coronavirus context endures
It’s encouraging to see signs of recovery, but it’s worth keeping the continuing context front of mind.
As we are seeing, recovery emerges in those areas well-controlled by the virus, enough perhaps for us to glimpse the future. But it’s the continuation of the pandemic’s control that will set the pace, and that, we do not know the extent of yet, beyond our continuing reliance on digital and technology.
| Asset Class | Proxy | 1-Month | 3-Month | 6-Month | 1-Year |
| Cash | UT Cash/Money Market | 00.00% | 00.00% | 00.01% | 00.19% |
| Gilts | FTSE Gilts All Stocks | 00.03% | -05.16% | -05.66% | -07.79% |
| UK Corporate Bonds | UT UK Fixed Interest | 00.19% | -04.00% | -06.10% | -04.73% |
| UK Equity | UT UK Equities | 04.15% | 10.30% | 29.81% | 32.02% |
| European Equities | MSCI Europe ex UK | 03.69% | 07.91% | 23.64% | 33.31% |
| US Equities | S&P 500 | 03.83% | 09.33% | 19.41% | 30.79% |
| Japanese Equities | MSCI Japan | -01.89% | -01.24% | 09.41% | 18.95% |
| Emerging Markets Equities | MSCI Emerging Markets | 00.86% | -01.96% | 14.82% | 35.48% |
| Property | UT Property | 03.88% | 07.92% | 16.63% | 16.15% |
Data Sourced from Financial Times, FE Analytics, and Bloomberg Finance LP.