18 February 2021

The Return of Confidence

As we hopefully approach a return to normality, what are investors turning their attention to and why?


This week got off to a good start for both the stock market and sterling. The strong start on Monday continued into early trading the following day, with both US and Chinese markets closed and so unable to influence sentiment. As it happens, markets on the other side of the Atlantic have been buoyant of late, with new highs posted last week. Much will depend on the efficacy of President Biden’s $1.9 trillion stimulus package, which some fear will spark a resurgence of inflation.

This new enthusiasm for equities is not confined to the US. The MSCI Emerging Markets Index and, indeed, its World Index, have both posted new highs recently. Even the Sage of Omaha, Warren Buffett, has been dipping his toe into markets recently. And a recent survey of fund managers conducted in the US showed a greater enthusiasm for equities than for some time, with cash levels being run down.

As for the pound, the successful roll-out of the vaccine programme and better than expected economic growth figures have prompted renewed demand. Hope is now pinned on an early end to lock-down being announced by the Prime Minister, though any proposed measures are likely to be wrapped in caveats. The NHS is certainly warning against opening up society too early, despite a welcome fall in hospital admissions and deaths, but calls for some easing of restrictions are growing, particularly from Conservative backbenchers.

There is not a great deal else around at present for investors to get their teeth into, though we do still have a sprinkling of results and economic data emerging. Results from banks and mining companies will have kept analysts busy, with generally welcome news being shared with investors. The restoration of Glencore’s dividend is cheering and supports the belief that, following a fall of around one fifth in the dividend income arising from FTSE 100 companies last year, a significant bounce back can be expected for 2021.

Much hope is being pinned on pent up demand being unleashed all around the world once the pandemic is brought under control. Certainly, there is evidence that savings rates have been increasing, presumably because there is little opportunity to spend in lock-down. Coronavirus has undoubtedly caused hardship for many, but perhaps there’s some light at the end of the tunnel. Many fund managers clearly think this is the case.

Brian Tora, Associate

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