Coronavirus & Financial Markets Update – January 2021

I would like to take this opportunity to provide you with a further update on the Coronavirus pandemic and some of the developments in financial markets.

Turning first to the pandemic, the UK is unfortunately in a significantly more difficult situation than only a month ago as the number of people being hospitalised with the illness has grown rapidly in recent weeks.

This is in no small part due to a new strain of the Coronavirus which is thought to be more than 50% more infectious than the original strain and, when added to the fact that most respiratory viruses find it easier to spread in the colder months, this has proven hard to get control of.

In response the government has announced a third national lockdown, this one much closer in severity to the original lockdown of last March, and stated that it will be in place until at least the middle of February.

However, in contrast to the first national lockdown, there is not only the hope of a vaccine but the reality of two vaccines being rolled out as you read this. Crucially it is estimated that vaccinating the top four priority groups will cut hospitalisations and deaths by around 75%, and it is the government’s target to vaccinate these groups by mid-February.

The key question both in terms of health and the economy has therefore become how quickly the government can complete these vaccinations.

So far stock markets seem to have come down on the ‘glass half-full’ side of the argument and anticipate a strong recovery from the Spring.

Amazingly, despite many countries experiencing the sharpest contraction in growth on record at some point in 2020, the MSCI World Index has returned 16% over 1 year, an impressive performance by any measure.

The FTSE All Share has lagged well behind the American and Asian markets, in part because it has a high weighting to the sectors most affected by the pandemic; retail, energy, and financials. However, since the announcement of an effective vaccine in early November it has been one of the best performing markets in the world as investors position for a strong recovery.   

The size of stimulus measures introduced by governments and Central Banks in order to keep businesses afloat, prevent mass-unemployment and ensure financial markets have confidence has been colossal. Indeed it dwarfs the response to the 2008/09 crisis.

At some point in the future there could be a reckoning for the economy and financial markets, either through inflation, higher interest rates or higher volatility.

However, for now, the focus of both financial markets and indeed everyone is on the hope of a return to normality at some point this year.

I would also like to reassure our clients that the office is functioning very well with key staff members working from the office so that our service commitment to you continues with minimal disruption.  Please do not hesitate to contact us if you have any queries or require assistance.

Should you have any queries concerning these matters then please do not hesitate to contact us.

Statement issued on 07/01/2021 by:
Nigel Foster, DipPFS