2020 – A Roller Coaster Ride

2020 was a roller coaster ride for investors. The psychological and sociological impact of COVID-19 was enormous. When Imperial College announced that there could be 40 million deaths as a result of the virus, governments around the world started imposing dramatic lock-down measures which resulted in a freeze on global economies with dire economic consequences. At that time I was in Durban, South Africa. The South African government imposed strict lockdown measures not even allowing people to walk in the streets unless they were on their way to or from the supermarket. Going into the pandemic the unemployment rate in South Africa was estimated to be as high as 30%. With the lockdown unemployment rose even further, a disastrous situation for so many South Africans depending on day-to-day employment to survive. Sadly, it seems with the appearance of the new virus mutation South Africa is far from seeing the end of it.

I was able to travel from South Africa to Germany in April and the situation could not have been more different. Arriving in Munich, I noticed that people were going about their business as usual but wearing masks. Taking a bike ride along the Isar River it seemed like a picture of Miami Beach with hundreds of people sunbathing along the river’s edge. I then realized that there were many different solutions to preventing the spread of the virus. But even Germany is now battling with the virus on unprecedented levels. It might be due to the cold weather and people spending more time indoors or it might simply be due to a general fatigue people are feeling towards the restriction placed on their everyday lives.

As regards to markets the COVID news created a stock market panic so that the MSCI Emerging Markets index crashed by 32% between January and 23 March providing an excellent opportunity to purchase severely undervalued stocks. The panic subsided quickly so that from the March low to the end of the year there was a 65% plus recovery. The pattern was the same for other markets around the world. The S&P500 fell by around 30% between Jan and March and then recovered by 65% up to the middle of December. For those of us who did not sell in the panic but held on, our faith in the companies in which we had invested paid off and we were able to participate in the recovery. (The most read article on markmobius.com in 2020 was on historic bear markets: "This time it's different"- Bear Markets And What We Can Learn From History”)

The surge in stock prices since March is a forecast of what I consider to be a “V-shaped” recovery for 2021. As we have learned in the past, the stock market is a forecasting instrument as to what is going to happen to economies. In this case, the actual shrinkage of almost all economies around the world in 2020 as a result of the COVID measures will be followed by a recovery in 2021. So while in 2020 the GDP change numbers will be negative, or what is euphemistically call “negative growth”, in 2021 the positive GDP growth numbers will be quite impressive since going from a negative to a positive will mean some unusually big percentages.

With that background and with a relatively benign political environment, as well as vaccination programs against COVID starting in many countries the financial outlook for 2021 is relatively good. The world’s two largest economies will do well. China has already recovered to a great extend with export growth higher than expected. Originally we thought that a Biden Presidency would not be good for the US stock market because of his intention to increase taxes. But now with a divided Congress, it is unlikely that such large tax increases will take place. Aligned to that is the Federal Reserve and other central banks intention to keep interest rates low and supply plenty of liquidity for economic recovery to take place. This, of course, is positive for markets.  

Making forecasts about what equity markets will do in the future is a thankless task and no doubt there remain uncertainties. However, despite the worrying news of faster spreading mutations of the virus in recent days I am cautiously optimistic. Yes, we have not left all behind us yet and there might be a tough couple of months ahead but vaccinations have started and the markets are signalling an economic recovery. Therefore, we now feel reasonably comfortable that 2021 looks like a happy year.  

And that is what I would like to wish all of you: A Healthy and Happy New Year 2021!

I would also like to thank you for following me on markmobius.com and am very much hoping that you are able to enjoy the festive season despite the restrictions many of us are facing this year.  

Best wishes,

Mark Mobius

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