The return on LD Discretionary, the largest investment fund within The Cost-of-Living Allowance Fund, stood at 2.3% on 9 December 2020. Over a 36-month period, the return stands at 7.8 per cent. Both global equities and corporate bonds rose sharply in November, mainly due to the announcement of several vaccines that proved effective against Covid-19.
Impact of future vaccines
In November, news was released that no fewer than three vaccines had been shown to be effective against Covid-19. These are the Pfizer/BioNTech, Moderna and AstraZeneca/Oxford vaccines. They are set to be rolled out as early as the end of 2020 or the first quarter of 2021. Prices and efficacy rates vary, but there is now a high probability that several billion people could be vaccinated during 2021. News of the vaccines came in quick succession throughout November, causing risk assets to rise.
The major European and US share indices, including the German DAX and the US S&P 500, rose by 15 per cent and 8 per cent respectively in November, measured in Danish kroner. The US dollar has fallen by 3.5% against the Danish krone. Yields on 10-year government bonds have also been highly volatile over the past month. Yields on German and French 10-year government bonds are currently falling, whilst yields on US 10-year government bonds are rising.
The service sector continues to suffer
It is worrying to see infection rates continuing to rise in both the US and Europe. Further lockdowns are inevitable to prevent the healthcare system from becoming overwhelmed. Restrictions have once again affected leading economic indicators. Both the so-called PMIs for the services sector and consumer confidence fell in November. However, the manufacturing sector is not showing such sharp declines, as this sector is still able to operate despite the restrictions. Whilst the services sector in particular continues to suffer in Europe and the US, the picture in Asia, including China, is more positive. The industrial and manufacturing sectors in China are experiencing strong growth, and economic activity in general has shifted into a higher gear.
The US presidential election is as good as decided. On election night, it looked like a close race between Donald Trump and Joe Biden. But as the record number of postal votes were counted in the days following the election, it is looking more and more like a certain victory for Joe Biden. Donald Trump’s allegations of electoral fraud are now increasingly isolated. Trump remains the incumbent president until the handover on 20 January 2021. Statements from him could therefore still cause unrest and volatility on the stock markets.
An optimistic outlook for 2021
The rise in new Covid-19 cases in the US and regional economic lockdowns create an urgent need for a decision to be taken on a new economic stimulus package. The US and European central banks also appear set to continue providing stimulus to the economies. An injection of further liquidity is likely to give a boost to financial assets. It is therefore to be expected that the financial markets will largely ignore a period of further restrictions and lockdowns. As vaccines are rolled out, this will lead to a new economic recovery.
