Vaccines - Beacon of hope 2 Dec 2020 COVID-19 continues to cast its shadows over a global economic recovery, as global stocks ebbed and flowed to the rhythm of US presidential elections, potential COVID-19 vaccines, trade tensions and increased regulatory risks over technology companies.
Coronavirus continues its spread across the world with more than 58 million confirmed cases and 1.3 million deaths. US has the most cases and highest death toll in the world, exceeding 12 million recorded cases and 250,000 deaths. India and Brazil trail the US in highest recorded cases, with nearly nine and six million confirmed infections respectively. In Europe, Spain, France, Italy and the UK have all recorded more than one million cases, as did Argentina, Colombia and Mexico of Latin America. There is also resurgence of the virus in Turkey, Canada, Russia and Japan.1
Vaccine hopes Preliminary data on Pfizer/BioNTech and Moderna’s COVID-19 vaccines were respectively found to be around 90% and 95% effective. A Sputnik V vaccine developed in Russia has also released very early data which suggests it is 92% effective. The positive data results raise hopes that other vaccines in development will also be successful. However, the logistical effort of vaccinating, potentially billions of people, around the world is gargantuan.2
US After winning the 2020 US presidential election, President-elect Joe Biden and Vice President-elect Kamala Harris will be inaugurated on 20 January 2021. Between the election result and the start of the new presidential term, the Biden team will be picking people to serve in the cabinet, discuss policy priorities and prepare to govern.3
The Biden administration is expected to reverse course quickly on parts of Trump’s foreign policy agenda by rejoining the Paris climate change agreement, working more closely with other countries to combat COVID-19, reviving the Iran nuclear accord, and is likely to reverse Trump’s decision to leave the World Health Organisation (WHO).4 The President-elect’s pandemic strategy includes developing a centralized testing and tracing strategy, preparation of a vaccine distribution system, and public health directives such as mandating the wearing of masks. Post-crisis, Biden’s administration is focused on: (1) eliminating socioeconomic barriers to training and education for students and workers, (2) growing renewable energy, manufacturing and technology, and (3) investing in infrastructure and technological research and development.5
US’ recovery is showing signs of slowing down, and the economy remains vulnerable. There are indications that Americans are pulling back on credit-card spending, and retail sales grew by less than expected last month. Critical benefits for millions of unemployed people are also set to expire in December if Congress fails to step in.6 In an effort to drive higher uptake of its Main Street Lending Program, the Fed lowered the minimum loan size on its loans to small- and medium-sized businesses, which has so far made almost 400 loans totalling US$3.7 billion, and which can support up to US$600 billion in total loans.7
Trade tensions US-China relations continue to remain tense. US President Donald Trump signed an order which will effectively prohibit investment firms and pension funds from buying and selling shares of Chinese companies deemed as having military ties on 11 January 2020.8 Separately, the Securities and Exchange Commission (SEC) intends to propose a regulation that would require US-listed Chinese companies to use auditors overseen by the US or face delisting from US stock exchanges.9 Biden had voiced concerns about national security with respect to Chinese technology, making it likely that his administration would maintain efforts to curb access to US intellectual property and data for certain Chinese technology companies.10
China and Australia have also been caught up in trade disputes of late, but both countries signed a huge free trade deal alongside other countries across the Asia Pacific region on 15 November 2020 – the Regional Comprehensive Economic Partnership (RCEP). The RCEP spans 15 countries and nearly 30% of global population, and would eliminate tariffs and quotas on 65% of the goods that are traded in the ASEAN region. Based on 2019 data, the countries’ combined GDP totals roughly $26 trillion and account for nearly 28% of global trade.11
Turning to Brexit, the UK was automatically part of roughly 40 trade deals with more than 70 countries while it was an EU member. More than 20 of these existing deals, covering 50 countries or territories, have since been rolled over and will start on 1 January 2021. Existing agreements that is not rolled over will end on 31 December 2020 and future trade will take place on World Trade Organisation (WTO) terms until a deal is reached. Negotiations on a trade agreement between the EU and the UK continue to be under way, as with the US, Australia and New Zealand.12
Europe
The euro area’s economic outlook has darkened considerably in recent weeks as record-breaking COVID-19 cases across the region have forced governments to reintroduce restrictions on activity. A stronger-than-expected rebound over the summer months have given way to a possible double-dip recession, and European Central Bank (ECB) President Christine Lagarde warned that any future recovery is likely to be unsteady and contingent on the pace of vaccine roll-out.
Lagarde highlighted that the pandemic emergency purchase program and targeted longer-term refinancing operations have proven their effectiveness and are therefore likely to remain the main tools for adjusting monetary policy going forward. Still, rate cuts aren’t completely off the table. ECB research showed that the deposit rate, currently at -0.5%, could fall as low as -1% before it becomes more harmful than beneficial.13
In the UK, unemployment rate for July to September was 4.8% according to the Office for National Statistics (ONS), translating to 1.62 million unemployed people. The Bank of England touted in its most recent forecast that unemployment would most likely peak at about 7.7% in April to June of 2021.14
Asia Pacific
Australia While Australia has controlled the spread of the virulent disease and opened its economy earlier than expected, domestic and international borders remain closed, business investment is weak and consumer spending is still tepid. The A$2 trillion economy is in its first recession in three decades, with jobless rate hovering near 7%.
The Reserve Bank of Australia (RBA) trimmed interest rates to near zero and expanded its bond-buying programme in November, and cut its target for three-year bond yields to 0.1% to align with the cash rate, which, it pledged will remain unchanged until inflation is sustainably within its 2-3% target band. On the fiscal front, the Australian government has unleashed A$300 billion in emergency stimulus to prop up growth this year, including A$17.8 billion in personal tax cuts approved in last month.15
China Chinese internet stocks took a hit when regulators issued draft rules aimed at preventing monopolistic practices by internet companies. The move came on the heels of a postponement of the massive Ant Group initial public offering (IPO), citing the company’s inability to fulfil conditions amid the changes in the regulatory environment.16
During its fifth plenum, high quality development, supply-side reform, technological self-reliance and the driving up of domestic consumption were cited as key strategies for the next stage of China’s economic development. From 2021 to 2025, there will be a multi-pronged push to raise incomes in urban and rural areas – by building a quality education system, improving aged care and improving the social security system.17
India Citing the steady decline in new and active COVID-19 cases since September, rating agency Moody's revised its 2020 GDP growth forecast for the Indian economy to -8.9%, up from its earlier forecast of -9.6%. Industrial production in September grew for the first time in six months while green shoots are also visible in rising goods and services tax collections, higher energy consumption, and an uptick in the purchasing managers' index among other gauges. If the upturn is sustained over the next few months, the Reserve Bank of India (RBI) expects the economy to break out of the contraction seen in the first two quarters and return to positive growth in the final quarter of 2020. Inflation however, recorded above 7% in October for a second straight month, well above the medium-term target of 4%.18
While vaccine trials have shown signs of success, the distribution of vaccine on a global scale is no small feat. Restrictions and potential lockdowns are likely to persist as clinical trials are underway, and even as vaccines, when they are approved, can be distributed. As fiscal and monetary efforts continue to support economic recovery, the pandemic will remain the talk of the town, and its containment will likely be the key inflection point to a sustained economic recovery.
There is no need to try to time the markets. It is important to understand how your investments have held up over the pandemic and understand where and why you have made profits or losses on. There is never a wrong time to evaluate and rebalance your portfolio with those findings, to ensure that your portfolio commensurate with your financial needs, investment goals and risk tolerance. At the same time, it is also important for you to perform your own research before investing, and to ensure your investment portfolio is sufficiently diversified, avoiding concentration risk to any particular sector or region.
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Sources:
1. https://www.bbc.com/news/world-51235105 2. https://www.bbc.com/news/health-54902908 3. https://www.bbc.com/news/election-us-2020-54845063 4. https://www.bloomberg.com/news/articles/2020-11-08/allies-prepare-for-abrupt-u-s-u-turn-as-biden-shifts-priorities 5. https://www.nbcnews.com/business/economy/biden-talks-pandemic-response-jobs-stimulus-hints-his-strategy-working-n1248041 6. https://www.businessinsider.com/biden-democratic-stimulus-plan-congress-republicans-negotiations-2020-11 7. https://finance.yahoo.com/news/fed-lowers-minimum-loan-size-on-main-street-lending-program-150016390.html 8. https://www.bloombergquint.com/politics/trump-bans-investiments-in-firms-controlled-by-china-s-military/ 9. https://www.scmp.com/news/china/politics/article/3110275/us-moves-ahead-law-could-remove-chinese-firms-stock-exchanges 10. https://www.bloombergquint.com/us-elections-2020/biden-s-long-history-with-china-unlikely-to-mend-trump-era-rift 11. https://edition.cnn.com/2020/11/16/economy/rcep-trade-agreement-intl-hnk/index.html 12. https://www.bbc.com/news/uk-47213842 13. https://www.bloomberg.com/news/articles/2020-11-11/lagarde-says-bond-buying-bank-liquidity-remain-key-ecb-tools?srnd=fixed-income 14. https://www.bbc.com/news/business-52660591 15. https://www.businesstimes.com.sg/government-economy/australia-central-bank-trims-rates-expands-bond-buying 16. https://www.investors.com/news/technology/alibaba-stock-china-internet-regulations-baba-tchey-jd/?src=A00220&yptr=yahoo 17. https://www.scmp.com/news/china/politics/article/3107709/five-year-plan-china-officials-flesh-out-details-plenum 18. https://economictimes.indiatimes.com/news/economy/indicators/india-rate-cuts-bets-fall-as-recovery-gains-hold-inflation-stays-high/articleshow/79230985.cms
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