Investment Newsletter – May 2021
The emergency in India, where a worrying virus variant is spreading rapidly, is driving a new global surge in the pandemic. It also carries implications for countries relying on India for the AstraZeneca vaccine, millions of doses of which are manufactured there. Furthermore, the number of COVID-19 infections in Africa has surpassed the 4.5 million mark, as the continent’s death toll topped 120,000. Overall, despite more than one billion shots having been administered globally, far too small a percentage of the world’s nearly eight billion people has been vaccinated to slow the virus’s spread.
As of April 2021, president Biden released the second portion of economic plan of USD 1.8 Trillion in new spending and tax cuts over 10 years for workers, families, and children. That is on top of the USD 2.3 Trillion infrastructure plan released at the end of March. The families plan announced would be financed partly through tax increases on the wealthiest Americans, while president Biden intends to pay for the infrastructure plan with 15 years of higher taxes on corporations. That said, Biden plan is to radically reform, redistribute wealth and opportunities as well as to stimulate the economy.
It is noted that only about minority of US investors would fall under capital gain tax (if Biden to introduce this policy) and the majority is owned in accounts not subject to capital gain tax, such as retirement accounts, endowments, and foreign investors. Overall, this could have implications for individual investors, but limited long lasting impact on the market overall.
Financial assets in US are now 6 times the size of the “real economy” (GDP), an extreme beyond all previous extremes, thanks to Fed’s ample of liquidity. This reflects the dominance of financial assets based on extreme expansions of debt, leverage and speculation. Few key risks on the financial markets including the tapering of asset purchases and higher interest rates. As of 4 May 2021, Yellen has drawn attention to market fears around a tapering of the central bank’s asset purchases, a necessary condition before the central bank starts raising rates. Overall, Yellen in a way is stress-testing the market reactions.
In contrast to the dangerous optimism in the US markets, the recent trends on China stock markets reflect concerns that China’s economic growth has peaked after 18.3% annualised expansion in the first quarter of 2021, tighter monetary policy, a widening antitrust crackdown, increasing COVID cases in the world, and potential re-escalation of geopolitical risk have prompted investors in China to “take profits” resulting retracement in the stock markets. Nevertheless, this is a good opportunity for China to promote deleveraging and China has achieved good results in the first quarter of 2021, with macro leverage ratio dropped by 2.6%.
According to SynTao Green Finance’s statistics, from 2009 to 2020 (as of 15 June 2020), the number of ESG reports issued grows from 371 in 2009 to 1,021 in 2020, which indicates a continuous and stable increase. In 2020, about 27% of the listed companies issued ESG reports. More than 86% (259) of CSI 300 constituent companies have released reports, indicating that leading companies already have a strong awareness of ESG disclosure.
