A successful Covid-19 vaccination programme is expected to trigger record-breaking growth for the global economy, business leaders attending an online HURST event heard.
The rate of growth could reach five per cent this year as life returns to normal, said Alex Brandreth, chief investment officer at Luna Investment Management.
Economies will accelerate
As the vaccine programme is rolled out, coronavirus restrictions will start to be lifted and economies will accelerate, Alex said in his latest quarterly economic update presented to senior executives from across the north west. The event was held on Zoom and was hosted by HURST partner and director of practice development Simon Brownbill.
Alex acknowledged that the scale of the pandemic means the worst is not yet behind us in the UK. The first quarter of 2021 is likely to ‘be awful’ for the national economy, with a decline of between 10 and 20 per cent due to the latest restrictions.
But, striking an upbeat note, Alex said that better times are on the horizon and that it was important to view things in a global context.
He said: “When you start to look further forward, with vaccinations, confidence will gradually come back. The public will be keen to get out and for their lives to return to normal. I am expecting the economy to bounce back very strongly as we move through this year,” he said.
Other factors leading to an anticipated resurgence include the Brexit effect, he added.
Future trade negotiations
Alex said overseas investors had shunned the UK following the referendum result. However, as a result of the successful trade negotiations, there are already signs that they feel more confident about investing here.
Across the Atlantic, the US election has caused short-term volatility and unrest, impacting markets here too.
Alex said, however, that we should not be overly concerned about the short-term, and that Joe Biden’s victory should be seen as a positive change. For example, it should usher in more positive and constructive relations with China, he predicted.
The huge US fiscal stimulus in response to the pandemic will also have a positive economic effect during 2021 and beyond, added Alex.
In the UK, the general population is in a healthy financial state, as Covid-19 restrictions have meant less consumer spending and therefore more money being allocated to pay down mortgages and bank loans.
The lifting of restrictions and a return to normal life will unleash pent-up consumer demand, with restaurants, bars, and the travel industry among those expected to see a huge benefit, said Alex.
He did warn, however that unemployment would continue to rise even as the economy picks up, as it is a lagging indicator. It may take several years to return to pre-pandemic levels of employment, but Alex said the jobless rate remains lower than in previous crises.
Stock markets & bond markets
Alex said a recession can be one of the best periods for investing, noting that the FTSE had its strongest day for 35 years in November, performed well in December due to Brexit, and that January had begun very strongly despite the Covid-19 restrictions.
Investor markets are rallying in anticipation of better times ahead, he said.
Alex explained that holding on to cash would erode its value due to inflation and ultra-low interest rates. Bonds remain very expensive, and their low yields compounded by inflation could lead to negative returns.
He said the UK stock market offers good value to investors and that sterling looks cheap.
Quality businesses with strong balance sheets
We are currently in a bull market, and Alex said he remains confident this will continue for several years.
It is being driven by technology, and he predicted these stocks would continue to do well.
Oil, gas, mining, and banking stocks currently look cheap, and Alex also suggested that companies whose share prices remain low yet are good quality businesses with strong balance sheets are worth a look.
He did, however, strike a note of caution about the long-term outlook for property stocks.
Luna, based in Manchester, was launched during the first lockdown but has grown its team to 10 and now has £250m of assets under management.
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To get in touch with Alex and the team at Luna, email email@example.com