One of the most encouraging recent signs is the result of the US presidential election victory for Joe Biden, despite some commentators being worried about tax increases and the growing influence of the left.
Kevin Boscher, chief investment officer at Ravenscroft, believes that a Democratic victory for president and a delicate balance with the Republicans in Congress will make it much less likely that the president-elect will be able to pursue his more progressive ‘green’ infrastructure stimulus deal. It will also be much more difficult to push through many of his other favourite initiatives, including proposed tax increases, changes to healthcare and increased regulation.
However, Mr Boscher said that Mr Biden would be able to apply a more rational cost-benefit analysis of Covid rather than dwelling exclusively on the risks. Mr Biden and the other Democratic leaders would be even more desperate than Mr Trump to engineer a powerful economic recovery during next year and beyond, he added.
‘A new US President with liberal, internationalist views and a policy of prioritising economic growth, fiscal spending and more globally co-ordinated action could persuade European and other global policymakers to follow suit,’ Mr Boscher said.
Much of the political uncertainty had been removed, therefore, although equities were still likely to stay volatile for some time, the Ravenscroft expert said. But he added that next year was more likely to be a year of stronger US and global economic growth than an extension of the Covid slump.
‘Monetary and fiscal policy will remain exceptionally accommodative, not just in the US but also globally,’ Mr Boscher said.
‘Although Biden’s proposed tax increases are potentially bad news for stock prices, it will be more difficult for him to enact these and his expansionary infrastructure and clean energy programmes, if passed, should boost domestic demand, thus benefitting some sectors of the market.
‘In addition, the dollar has weakened this year, which is equivalent to monetary easing and will boost exports and corporate profits from overseas markets. Biden’s victory will likely have an impact on the longer-term relative performance of certain sectors and market leadership may change. For example, infrastructure, renewable energy, biotech and managed care stocks should benefit while financials, big tech and pharmaceutical companies might struggle on the back of tighter regulation, should Biden successfully get this through.’
Mr Boscher concluded that inflation was unlikely to become an issue while the economy had so much spare capacity.
Another locally-based expert, Dr James Cooke, head of global equity research at Ashburton, agrees that the continuing strength of the Republican party in Congress will mean Mr Biden’s more aggressive policies will be tempered.
That would probably result in central banks continuing with easy monetary policy, which should be good for the equity markets, he said.
However, Dr Cooke warned that equity markets still remained unstable, and there was a need for a vaccine before there was an economic recovery. He suggested that there were few alternatives to invest in anything, other than equities, but a further slowing of GDP growth was around the corner before we would see any recovery.
The market has been primed for good news, and there has been a rally in sectors hard hit by the lockdown, including travel and high street retail which have been particularly badly affected in Jersey.
‘The rally in the “dash for trash” trade is likely fairly short term and we anticipate structurally challenged businesses will continue to struggle,’ Dr Cooke said.
There are positive trends in some areas of the economy which should provide investment opportunities, according to Ashburton.
‘The Covid crisis accelerated a number of global secular trends which we expect to endure, including e-commerce, increased hygiene and an increase in the use of data,’ Dr Cooke said.
‘We continue to seek reasonably priced quality companies by which we mean those with sustainable barriers to entry, generating economic profit, with strong balance sheets and good shareholder treatment. These ingredients ought to continue to provide good risk-adjusted returns.’