Stock Take

As vaccination programmes gather steam, economists are busy predicting how quickly countries around the world will bounce back from the economic damage done by COVID-19.

Last week, the IMF upgraded its world economic growth forecast for the second time in three months, although it also warned about rising inequality and a gap between advanced and lesser-developed economies. However, one of the most striking parts of its update was its prediction for the speed of growth in Asia, where it expects the regional economy to grow by 7.6% this year.

Data also showed last week that the Chinese economy performed well during the first few months of this year.

“The Chinese economy has been exceptionally strong ever since COVID-19 was brought under control,” noted Martin Hennecke, Asia Investment Director at St. James’s Place. However, he notes that the first-quarter figures are slightly distorted by the ‘low base’ effect, because the first quarter of last year (which the recent numbers are compared against) was especially low due to COVID-19.

Hennecke added: “In fact, real growth actually slowed slightly when compared with Q4 2020, but in my view that’s a positive, since China has deliberately sought to cool bank loan growth, deleverage generally, reduce the budget deficit from 3.6% to 3.2%, and tighten IPO standards, to mitigate overheating and bubble risks. In the medium to long term such prudence might well enable a higher level of stability.”

For investors, uneven levels of recovery around the world should underline the importance of diversification. By investing across different countries and asset classes, you lower your exposure to any one type of investment, which is an important way to manage the level of risk you are taking.

The importance of fundamentals

Last week, Wall Street’s VIX index, which measures expected volatility in US stocks, fell to its lowest level in roughly a year. Strong earnings results from banks and other financial companies helped push US stocks up.

Similarly, London’s FTSE 100 Index of large UK companies reached its highest level since early last year. In another sign of the UK’s recovery, online job adverts are now at their pre-pandemic levels (see In the Picture).

While markets were more optimistic last week, the past few months have been characterised by plenty of uncertainty about the outlook of the world economy. Investors have been trying to assess the likelihood of higher inflation, the threat of new COVID-19 variants, and lofty valuations for certain sectors of the equity markets (such as large technology businesses).

Over the past year, there has been a surge in the share prices of companies that benefited from the pandemic. Recently, this trend has reversed somewhat, with the share prices of companies that are more related to the health of the economy (such as banks, energy companies and airlines) enjoying a revival.

While investors who bet heavily last year on fast-growing technology stocks were rewarded, the recent ‘rotation’ in equity markets may herald a shift in markets, wrote George Droulias, an Investment Analyst at EdgePoint, which co-manages global funds for St. James’s Place.

“One of the best-performing investment strategies in 2020 was simply buying businesses that had the fastest revenue growth without any concern for any other fundamental or valuation measures. In 2020, investors became enamoured with ‘work from home’ stocks and rapidly growing sectors such as electric vehicles, green energy, online gambling and cannabis.”

However, he argues that as the world emerges from COVID-19, the use of tried-and-tested financial principles will return as the best method for seeking long-term investment returns. Droulias added: “Behaving like a rational business person wasn’t rewarded in 2020, but it is and will continue to be important over the long term. Much like our social behaviours in 2020, we think certain stock market behaviours in 2020 were an anomaly. In turn, if investors want to set themselves up for long-term success, they should continue to focus on sound investing and business fundamentals, and put little emphasis on the ‘lessons’ learned in 2020.”

Wealth Check

The last 12 months of economic uncertainty, lockdowns and market fluctuations have impacted the financial confidence of investors, according to a recent survey from Technical Connection and Ad Lucem.

Only 47% of people with investments under £500,000 felt confident about their finances.1

Our financial confidence is connected to a feeling of security: our savings and investments provide us with a safety net should the worst take us by surprise. They also allow us to plan for and be excited by the future, giving us a sense that our long-term goals and objectives will become a reality.

While history shows that market falls tend to recover over time, the feeling of anxiety that comes with seeing the value of our investments fall can have a lasting impact on our confidence and assurance about the future.

Thankfully, people who regularly saw a financial adviser reported feeling more confident about their savings: 60% of people who received financial advice felt optimistic about their finances – compared with only 35% who had not spoken to an adviser.2

If you’ve felt as though your financial confidence has been dented in the last 12 months, speaking to your St. James’s Place Partner about how best to plan for and secure your goals could have a material impact on your financial confidence and wellbeing over future market cycles.

A degree of uncertainty and market volatility is part of what comes with investing over the long term, but taking the right advice on what matters to you can make all the difference.

“Prioritising your goals and objectives is an empowering way of taking control of your financial future,” says Claire Trott, Head of Pensions Strategy at St. James’s Place. “Talking to an adviser about stresses or worries you have can be really beneficial for your mindset, and set you on the course that’s right for you.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

1 Survey of 500 advised clients conducted by Technical Connection, February 2021
2 Survey of 500 advised clients conducted by Technical Connection, February 2021

In The Picture

As the UK’s lockdown eased last week, there were signs that its economic recovery is under way. Online job adverts have reached the level they were at before the pandemic took hold last year, with employment growing in the retail and hospitality sectors, which were especially damaged by COVID-19.

The Last Word

“Our lives have been enriched through the challenges that he has set us, the encouragement that he has given us, his kindness, humour and humanity.”

The Dean of Windsor pays tribute to Prince Philip during his funeral over the weekend, which was watched by more than 13 million UK viewers.

EdgePoint is a fund manager for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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