Investment Newsletter – April 2021
In 2020, major central banks have committed to keep interest rates low and keep expanding their balance sheets on the back of the pandemic, resulting in massive liquidity and stock markets’ V-shaped recovery. Current retail trading frenzy amidst rising liquidity and margin loans could cause huge market stress and volatility ahead. The Fed’s promise of Quantitative Easing (QE) forever could cause a potential solvency crisis and surprised inflationary risks later.
COVID-19 has accelerated geopolitical transformations and remaking of global supply chains. How a country handles the pandemic has also indicated its future economic performance. Even though second wave of COVID-19 infections has further weakened global demands, Asia has clearly outperformed the world and should see faster economic recovery and thus better stock market performance ahead. After a year into the COVID-19 pandemic, the global efforts to develop and distribute effective vaccines have produced several promising options. This accelerated development is unprecedented as the process typically takes eight to fifteen years. We expect vaccines to help economic recovery by 2H21.
The highly anticipated US election saw the highest voter turnout since 1900, with each side receiving more than 74 million votes, suggesting that Trumpism has grown in popularity over the last 4 years. Joe Biden, the elected 46th President, will continue to face huge hurdles to unite his people on the back of systemic racism and widening political divide. The unstable US-China relationship could mean rewired globalization or a total decoupling. Geopolitical risks remain high.
China has contributed significantly to past world’s economic growth. With its economic focus shifts from quantitative to qualitative growth, this will have huge implications for world’s economic growth. After achieving its status as the world’s factory, we believe China is turning into the biggest consumption story ever in human’s history. With the Covid-19 pandemic ending, the Belt and Road Initiative should take off in earnest, bringing in the next phase of infrastructure boom.
Signed on 15 November 2020, the Regional Comprehensive Economic Partnership agreement (RCEP) unites 15 countries, including China, ASEAN, Japan, Australia, Vietnam and South Korea, and covers a total population of more than 2.3 billion people, 30% of world’s population. This will be the world’s biggest economic and trading bloc, bigger than both US and Europe blocs.
After more than 7 years of negotiations, the European Union (EU) and China appear to have reached a deal for their Comprehensive Agreement on Investment (CIA). The deal is vital politically as it shows the EU’s commitment to its own economic sovereignty without constraints from the US. This clearly shows the shift of economic gravity from the west to the East.
