2020 will go down as an historic standout year for markets, rivalling the 2008/09 period in terms of sharp swings and high levels of volatility. Not alone did markets have to cope with Covid and its ultimate effects on economies and companies across the globe, but we also had the most bitterly contested US election in history and, in Europe, the culmination of the UK’s exit from the EU. At this point, the baton has been successfully handed over in the US, albeit a far from painless handover. In addition, we have an array of vaccines either fully approved or in the final stages of approval. However, logistical and other challenges are likely to mean that it will be Summertime before any sense of a return to normality emerges and restrictions start to lift to any great degree in most global regions. In regard to Brexit, the general expectation is that 2021 will be a year of adjustment for the UK economy but that the longer-term prospects may not be as gloomy as originally feared.
For 2021, among the factors likely to play a significant role in influencing market direction are:
- > A major fiscal support programme in the US, favouring areas like infrastructure and should also provide positive support for commodities and for emerging markets
- > An escalation of political and trading tensions between China and both the US and the EU, although we would not expect the impact on markets to be long lasting
- > A significant step up in efforts to push the green agenda across the world, helped by the US re-joining the Paris Climate Accord which will clearly be positive for ESG investments
The table below shows key market performances for both the whole of 2020 and for the fourth quarter expressed in euro terms.
Market * Perf. Q4 2020 * Perf. Full Yr 2020*
Ireland +16.6% +4.9%
UK +12.6% -15.3%
Japan +15.1% +11.1%
Europe +8.8% +1.9%
US +5.5% +6.7%
China +12.2% +5.5%
*Source: Financial Times, Financial Express
All major equity markets performed strongly in Q4, driven by the successful development of several vaccines. For 2020 the UK stands out as the sole negatively performing market, clearly a Brexit driven outcome. The positivity has continued into the early days of 2021 and few could argue that equity markets are not expensive by any historic measure. This certainly heightens the risk of a correction in the near term. However, our sense is that if such a correction occurs, it will reverse quite quickly, simply because it is hard to see value in any of the major asset classes and money has nowhere else to go. So for the year as a whole, we are cautiously positive on equities.
For holders of cash deposits, the picture is one of zero to negative rates persisting for some time. While fiscal support programmes could ultimately push bond yields higher, particularly in the US, this is not likely to be reflected in retail interest rates for quite some time. However, there are still some corners of the bond market offering positive yields and there are also attractive income options in the renewable energy space and in international property funds which should be considered by clients seeking income.
With so much uncertainty in markets it has never been more important to ensure that your investment portfolio is aligned to your overall financial and retirement plan. Small tweaks in your investment strategy may make a big difference toward meeting your goal.
If you have any queries in relation to the above, please contact Harvest on 01 2375500 or justask@harvestfinancial.ie.
Market 2021 Update by Terry Devitt, Investment Director
