News & Views

MAIA Market Commentary Q217 May 2021

It has been over 12 months since the world first went into full lockdown, and the COVID-19 pandemic remains a dominant driver of news flow, as well as the causation for many aspects of government policy, monetary policy, and economic data.

Thankfully, since the final quarter of last year, focus has shifted towards vaccination programs and the implementation of roadmaps for ending lockdowns in a staged and managed way.

The UK and US are motoring ahead in the rollout of vaccines, as both regions ordered sufficient vaccines to cover their populations from multiple sources before efficacy data was even released. This meant that when Pfizer, AstraZeneca and Moderna did finally publish their trial data the UK and US were at the front of the queue. This has led to 37% of American & 50% of British adults receiving at least one dose of the vaccine at the time of writing. President Biden and Prime Minister Johnson have also highlighted a positive roadmap out of lockdown measures and both countries are well on the way to fully reopening by the summer.

For investors, one of the key pieces of the puzzle for moving out of the pandemic with as little economic damage as possible is the continuation of huge fiscal stimulus programs which were first introduced during the height of the Pandemic.

In the UK spring budget, Chancellor Sunak delivered a continuation of the stimulus measures enacted during 2020. Self-employed support has been extended in line with the extension to the furlough scheme (both now due to end in September). The Stamp Duty holiday has also been extended to June with a tapering for 3 months after that. Alongside this, tax rates have been frozen for a period and new allowances have been brought in to help encourage businesses to invest.

Within Europe, after the Coronavirus bill was finally signed off in December last year, individual nations continue to pass legislation to access these funds. This stimulus bill is the largest that has ever been implemented and highlights how important it is to continue to provide support, not just at a national level but on a European level as well.

In the US, after the outgoing President Trump signed a $2 trillion coronavirus bill, President Biden also passed a further $1.9 trillion bill to keep the fiscal stimulus flowing for America. He is already looking to set out a further Infrastructure Bill to be enacted in 2021 to provide additional stimulus to the US economy.

Alongside fiscal stimulus, central banks continue to implement loose monetary policy to keep funding and liquidity within markets. During the quarter, there were meetings from all major central banks. The statements and rhetoric were that the current monetary policy regime will still be in place for the foreseeable future.

With the easing of lockdowns, we are already seeing a pronounced recovery, and the global economy is set for strong growth. Many are predicting inflation to rise, however so far only a small amount of inflation in raw materials has been seen.

For the time being, Central Banks have stuck to the same hymn sheet, that QE and loose monetary stimulus will continue. Inflation will be transitory and the projection for economies is dependent on lockdowns easing. As the end of the lockdown path is not fully embedded yet, the Federal Reserve, European Central Bank and Bank of England will continue to push this view for the time being.

In line with the increased focus on Central banks, economic data releases over the quarter have been steadily improving, especially in the UK and US. Even in Europe and Japan, GDP predictions have increased alongside falling unemployment, improving manufacturing & services and positive housing numbers. These data points are key in helping to plot the economic route out of the pandemic and predicting any longer-term damage that could be in place due to the COVID -19 pandemic.

Moving forward, MAIA’s investment team will be focusing on the opening of economies over the coming months. Within this, there is also a focus on how society and economies will maneuver the ‘new normal’ and what this means for markets and investments.

We continue to manage money on a multi-asset basis across styles, size, sectors, and geographies. Different economies will move out of the pandemic at different speeds which creates opportunities and risks. As a team, we are focused on looking at not just the near future, but any changes that may be apparent for the long term and managing portfolios appropriately to take this into account. Moving out of the pandemic will not be plain sailing as there are risks still present. However, the roadmap out of the pandemic does provide more clarity for business and investment which is something which we are grateful to be able to focus on. Being active in selection and management is key and the opportunity to outperform is available when the right assets are selected and held for the long term.

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