Quarterly Review

Strategies for an altered world

David Wheildon / February 2021

2021 has begun quite unlike any other year in living memory, with a long way to go to reach life beyond global Covid and many new realities here to stay. There are no guarantees. But, says David Wheildon, if we’ve learned a thing or two it is that preparation, diversification and keeping hold of a longer view are key to successful adaptation. Something we’ve always done.

 

At the beginning of each year I like to reflect on the last 12 months to examine how life has changed and to consider the prospects for the coming year. Each year carries its own moments of excitement, surprise and concern (usually in equal measure) but the last 12 months’ moments barely stand out against the backdrop of the Coronavirus pandemic.

At an individual level lives have been changed (with others lost) to a very great level and they will not return entirely to how they were-ever. We are still in the early stages of the vaccination roll out and this will take time to have an effect both on our ability to fight the disease and the releasing of the global economy from its current lockdown position. Anyone who anticipates the vaccine as being a “silver bullet” to the problem is at best ambitious and at worst delusional. The vaccine is providing our exit route from the pandemic, but it will take time for its effectiveness (particularly against new variants) to be proven and for the global economy to recover.

Nonetheless the markets do see the vaccine as the exit route and are beginning to factor in not only economic recovery in 2021 but a degree of progress in 2022.

 

PRESSURED INFLATION

 

As we know, markets reacted badly in the Spring of 2020 but it was the wise investor who chose to ride out the troubles and our portfolios are now comfortably in profit over the last 12 months. Although the headline indices are still significantly down, the well balanced and diversified portfolios have shown their worth throughout the troubles of 2020 and have moved ahead in 2021.
It is clear that Central Banks are worried about long term unemployment and are happy to promote supportive measures even if this means letting inflation run a little. With President Biden now in office and his significant spending plans to stimulate the US economy this will only add to inflationary pressure on global scale.

With China posting continued economic growth despite the Coronavirus pandemic, and encouraging signs of increased economic activity, it is likely that the whole Asian sector should benefit and therefore perform well this year too. This is good news for equites and for the repayment of debt but bad news for bank deposit savers. If inflation is allowed to run at or above the Bank of England’s target rate then we should see good returns from shares and it will make the repayment of debt easier to achieve. With interest rates unlikely to move upward with any degree of speed this is a perfect storm for deposit savers but good news for those with well diversified portfolios.

 

CHANGING REALITIES

 

The “old” economic world has changed and in the new world of combined home/office working there will be significant winners and losers, as the home worker will need or want a greater level of comfort and control of their working conditions. They’ll save time and money by travelling less but will spend more on their own heating and power and perks to keep them motivated through the day – perhaps that lunchtime snack and high street beverage will be replaced by a home brewed cappuccino and toasted sandwich? Companies in a position to provide products and/or services to the home worker will thrive whereas those reliant on the old order of working may well find themselves in trouble.

The same principle applies to our high street; it seems not a month goes by without news of an old established retailor in trouble or failing completely. We will not move to a completely on-line world but those businesses without a competitive and efficient on-line presence continue at their peril. It is clear that we will not return to the traditional way of working – and, as I often mention in these pages, if businesses do not adapt, they will die.

Looking back at 2020 we were taught a number of lessons; black swan events do occur and we must be prepared for them, just because a business has been in existence for decades it has no guarantee of continued prosperity and diversification is the key to balanced returns in good and bad times. Most importantly we were reminded that investment is a medium to long term exercise where the short term fluctuations in both market values and sentiment should be accepted but not necessarily acted upon. Strategic decisions bear fruit over time and it is with this far reaching view that we begin our journey into the altered economic world that is post Coronavirus.

This article is the opinion of David Wheildon, Director of The Legal Brokerage.

This article is the opinion of David Wheildon