Review & Outlook
January 2021
We are still firmly in the grip of the pandemic and a return to the carefree lifestyle we enjoyed before the crisis continues to be a distant prospect as we move into the new year. Even though several vaccines have now been rolled out, their efficacy has yet to be conclusively proven – especially given the continuous mutation of the virus – and it will take a while for their side-effects to be fully investigated once testing has been done over a much longer period. These uncertainties will mean that many people are likely to hold off from immediate vaccination, and in any case the vaccines will only be made available to the broader population much later in the year.
As a result, many sectors of the economy will probably take much longer to recover than predicted by many so-called “experts”.
The new US president will now definitely take up office on 20 January 2021. In addition, the Senate election in the past week has shifted the parliamentary majority in favour of the Democrats. However, the chaotic scenes of the storming of the Capitol clearly highlight the deep political divisions in America. We can only hope that the new administration succeeds in bringing the people together again.
The US unemployment rate rose again in December for the first time since last May, which is likely to further weaken the rate of economic growth. Many small and medium enterprises are also in serious trouble and insolvencies will probably increase over the coming months. The new president will therefore be forced to launch another massive economic support programme that should benefit most sections of the population.
Over the course of last year central banks worldwide have pumped massive amounts of liquidity into the economy. They are using every means available to hold interest rates at historically low levels, as no one can afford to pay higher interest. However, this is sending government borrowing through the roof and further undermining the credit ratings of countries and their respective currencies.
The biggest beneficiaries of central bank interventions are equity markets, which have soared to new heights, partly because of the lack of investment alternatives. Several companies have benefited from the pandemic and their prospects are exceptionally bright in the longer term as well. But many other companies have now reached a valuation level that already factors in full economic recovery. If the general situation significantly worsens again, however, we cannot therefore rule out a market correction.
Our portfolios are broadly diversified, with an increasing focus on forward-looking sectors such as climate change and green technologies, which should receive plenty of support from the new US president. Our investments in precious metals, combined with our option strategies, also cushion the risk of unexpected market volatility.
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