February 2021 / MARKET OUTLOOK
Global Asset Allocation: February Insights
Discover the latest global market themes
MARKET INSIGHTS
As of 31 January 2021
Mutating Expectations
Optimism surrounding the global economic recovery is beginning to change as potentially deadlier variants of the coronavirus found in the UK, Brazil and South Africa are spreading just as vaccine rollout efforts have gotten underway. The potentially more transmittable and harmful mutations have led to renewed lockdowns, particularly in the UK and eurozone, and are threatening to push some regions into double-dip recessions. Current vaccines such as the one produced by Moderna are reported to still be effective against the new variants, but the pressure is on nations around the world to advance vaccinations to control the virus as it has shown the ability to aggressively mutate. The concerning mutations come as many regions are facing vaccine shortages and challenges surrounding vaccine storage and distribution. The next few months will be a critical race against the virus, as the longer it takes to control, the more damage it will have on lives and expectations for a global recovery.
Leaping Ahead
As the rest of the world struggles to get back on its feet, China reported that its economy grew 2.3% last year, making it the only major economy to report positive growth in 2020. After posting a strong 6.5% year-over-year growth rate in the fourth quarter, supported by investment spending and export growth, China’s economy leapt back to pre-pandemic levels and made strides toward becoming the world’s largest economy. China’s V-shaped recovery can be attributed to the early, stringent lockdown measures put in place to control the spread of the virus and the deployment of significant fiscal and monetary stimulus. A focus on infrastructure and a surge in pandemic-related demand—from masks to home office equipment—helped propel export demand, while domestic consumption contracted by 3.9% as retail sales remain one of the hardest-hit sectors amid the pandemic. China has worked for years to reduce its dependence on trade and grow domestic consumption, so the setback is likely to be temporary.
Off to a Quick Start
While the Biden administration put eradicating the coronavirus at the top of its agenda, taking action on regulations with executive orders has also been a top priority. Deregulation was a defining focus of the prior administration, notably within the energy sector; however, Biden has rapidly revisited a wide range of regulations emphasising climate change and green energy, as well as equality. On his first day, Biden temporarily suspended new permits for oil and gas leases on US properties, shut down the Keystone XL pipeline, and rejoined the Paris Climate Agreement. Democrats in Congress have also been swift to act on their agenda, pushing an additional USD 1.9 trillion stimulus package, on top of last year’s USD 4 trillion, and may look to use reconciliation, allowing for a simple majority in the Senate, to avoid requirements for a 60-vote threshold. While still early in the new government, Democrats are acting quickly and independently on advancing their agenda—perhaps more than the market may have anticipated when it expected a divided government.
For a region-by-region overview, download the PDF.
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Yoram Lustig is the head of Multi-Asset Solutions, EMEA and Latin America, in the Multi-Asset Division. He also is a portfolio manager and the chair of the UK and European Investment Committees.