Since the global financial crisis (GFC), there has been no other event more significant to markets than the creation of effective vaccines against COVID-19. It doesn’t actually matter what an individual’s view or opinion may be on vaccinations; the markets repositioned themselves across all the asset classes post the first vaccine announcement in November 2020.
Although this update covers 2021, markets don’t change based on calendar years but on events.
Global Sectors Versus Vaccines
The period since the first vaccines were approved has been marked by unprecedented sector divergence across the globe.
Intuitively one might expect healthcare to be a dominant sector as the world grappled with its first pandemic in many years, however, it continues to lag behind all other sectors. While there have been individual winners within the sector, buying the index has produced inferior relative results to the broader market.
Global Sector Performance Since The First Vaccines | 28th October 2020 – 19th January 2022
If we look at the pandemic’s effects on countries alone, then China should have considerably outperformed most of its peers. Its zero-tolerance policy has led to an infinitesimally small number of cases, hospitalisations and deaths compared to countries such as the US.
The reality, however, has been very different. The Chinese government’s clampdown on its tech and property companies, in particular, has meant the Chinese equity market has significantly underperformed almost all others. At the same time, whilst much of the developed world was literally throwing money at the economic problems caused by Covid, the Chinese government showed considerable restraint. Risk markets, especially post the GFC, like liquidity and easy money, not fiscal and monetary discipline, and the results are evident for all to see.
Selected Geographical Performance Since The First Vaccines | 28th October 2020 – 19th January 2022
Fixed Income Versus Vaccines
We suggested at the end of 2020 that barring a new variant that was worse than its predecessors, most, if not all, fixed income sectors could produce negative returns in 2021. Except for high yield and a minimal gain for the strategic bond sector, fixed income did indeed lose money, particularly sovereign bonds.
Fixed Income Sector Performance Since the First Vaccines | 28th October 2020 – 19th January 2022
Property Versus Vaccines
Global property was probably the biggest surprise for many investors since the news of the vaccines first broke. It isn’t that a return to some kind of normalcy would be harmful to property, but the headwinds seemed not inconsiderable.
There was already pressure on retail across the globe as more shopping continued to move online. Much commercial office space also suffered from a shortage of people to buy or rent at the same pre-pandemic levels. However, the factor which has been the dominant one, is the inflationary environment and need for real assets. A combination of global property securities and infrastructure worked well in 2021 but has run out of steam in early 2022. Fed policy and bond yields will be critical to returns as life goes back to some kind of pre-pandemic iteration of normal.
Property/Infrastructure Performance Since The First Vaccines | 28th October 2020 – 19th January 2022
Where Are We Now?
Many assets, including certain equities and bonds, benefitted from the governments and central banks actions to counter the negative impact of the pandemic. In reality, this meant even more money printing and easy monetary policies than was already the case. An outcome has been that some of the behemoth growth stocks such as Amazon and Facebook, and stocks like Netflix have valuations that pre-pandemic would have seemed almost unthinkable.
It is said that in investing, the most dangerous phrase is “this time is different.” That might well be true most of the time, but we would contend that the factors driving asset prices don’t stay precisely the same either, and neither will the best-performing countries or sectors in the coming months and years ahead.
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