Welcome to the first of our market updates for 2021. And we thought it’d be worthwhile just touching base on some of the key themes that we think are going to be important as it relates to financial market performance throughout the course of this year.
And we’ve got five themes that we’ve been focusing on. And the first and most important of those is the successful rollout of the COVID-19 vaccine. And today, we’re seeing roughly around about 50 million people globally inoculated against the COVID virus, but we expect this to pick up significantly through the first half of this year.
And that then leads to a more broad based global economic recovery. From our perspective, when we think about that, there’s probably two key areas that we’ll be looking at first and foremost is the ability for industries that have been negatively impacted by the spread of the virus to start to recover if we think about the airline industry, as an example, on that basis. And the second and probably most important one, from our perspective, is the ability for, you know, jobs like growth, in terms of the recovery, and the ability for the unemployment rate, both domestically and globally, to start to move low, we think is going to have a really significant positive impact in the context of financial markets, simply on the back that people with a job tend to spend more, and we start to see that shift to dollars throughout the economy start to speed up.
The third element associated with an economic recovery is the ability for trade both goods and services to pick up significantly, throughout the course of 2021, we see a significant negative impact in terms of trading of goods and services, particularly on the service side, throughout the course of 2020. Due to the lock downs, when we think the ability for a reopening of the global economy, the ability for industries that were impacted negatively, by COVID start to reopen, we think that’s going to be positive from a trade point of view. And we think that’s ultimately going to lead to greater wealth being created, and the ability for individual corporates to start to send to find new investment opportunities that are only going to benefit.
The overall wealth output over the medium term. The fourth element really is associated with, you know, what we’d say some of the risks associated with financial markets, and it’s a geopolitical element that we’re starting with. We’ve got a new administration in the US. And we think that certainly the the trade tensions that we’ve seen between the US and China are going to go away throughout the course of 2021.
Equally how the US deals with China in terms of the geopolitical front, we think is going to be very important in terms of how financial markets, price risk, and how they view investment opportunities, as relates to, both the US and China, equally on the geopolitical front, the US needs, in our view, to start to build bridges back with allies, both in Europe and in Asia. And we think that’s going to have, again, a significant impact in just in terms of, you know, how do you put politics works and operates throughout the course, not only this year, but also over the full new administration’s term. So the geopolitical front, we think, certainly can be one of the risks associated with financial market performance throughout the course of this year. And the final theme is the policy theme. And we’re looking at these both in the context of central banks, as well as what we’re seeing from government response to the spread of COVID.
As we know, throughout the course of 2020, both central banks and governments were very accommodative in the way that they responded to COVID. We saw significant fiscal packages, both domestically and globally, we’re looking at another trillion dollar package in the US and to be rolled out over the next little while. And equally central banks, by and large, are now operating in a zero rate environment. And continue, as I said, to maintain a high level of quantitative easing through bond purchase programs and also the purchases of mortgages. We see no change in that liquidity footprint over the course of 2021.
And we expect that as a set to provide a significant uplift to financial market performance, particularly if the global economy can reopen. And we start to see a significant decline in the unemployment rate globally that will enable consumers to start to spend more balance sheets by and large are in pretty good shape on that Francis said, if we continue that unemployment rate move lower, we think that’s going to be positive for financial markets.
So rolling all that up. As we sit here today, at the end of January, we certainly continue to maintain a growth bias within our portfolios and overweight to equities. By and large, we’re also including other longer duration assets as part of that overall strategy, and then an underweight position to cash or cash related investments. We think that’s an appropriate strategy. At this point in time we’ll be noting that as I said, there There’s still quite a number of risks associated with each of those key themes and certainly the rollout of the vaccine being been the primary objective on that front. As always, if you have any queries about your portfolio, please feel free to reach out to any one of our advisors.
Piers Bolger is Chief Investment Officer at Viridian Advisory
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