What an incredible turn of events but with many positives to consider. As always there are pros and cons; and care is needed. We may have a Covid-19 vaccine but not quite yet, stock markets have performed well relative to the real economies but there are many scenarios, which could impact us individually, personally and from an investment perspective.
The world is changing in front of our eyes, Coronavirus infections are rising internationally but could the vaccines be here soon? We are led to believe this is so, admittedly with a few hiccups, plus the economic environment is challenging – a contraction in the real economy but sectors to watch are pharmaceutical, health related, technology and distribution. These have performed excessively well under the changes leading to their extensive use. There are always winners and losers through a significant economic and environmental change.
Also, I think we should highlight the change of leadership in the US, and we may only be weeks away from Donald Trump acknowledging the outcome. The appointment of a Democratic President and a Republican majority in the Senate has created optimism through the markets as a conciliatory and balanced government without excessive or extreme legislative changes expected. I also believe balance and mutual agreement creates better policies. So, if it helps, I also see this as a positive outcome for the markets and ongoing investment expectations.
Coronavirus Covid-19 vaccine
The month of November has been fruitful in terms of the quest and announcements for an elusive Covid-19 vaccine. Our understanding is based on existing reports, we may have three vaccines with the potential of a high effective rate. Three frontrunners in the ongoing Coronavirus vaccine race-Oxford-AstraZeneca, Pfizer-BioNTech, and Moderna.
An admitted hiccup was the startling news of a “dosing error” by Oxford-AstraZeneca and this has cast some doubt over the authenticity of their efficacy data. We are expecting a delay while an additional global trial of the vaccine candidate is performed, data gathered, and results recorded. The positive is there are several (with possibly more alternative vaccines to follow). So, we accept the counsel provided that in a reasonable time distribution will ensue, but I don’t believe this will be until Q1 2021, at the earliest.
How Will the UK Government Reclaim the Costs of the Pandemic?
There are multiple thoughts and speculation but those receiving most traction are:
1. The Chancellor is expected to target the 6.4 million people on defined benefit pension schemes by confirming a change in the way the UK Government measures inflation. Rishi Sunak signalled this in a letter to the UK Statistics Authority chairman (Sir David Norgrove), earlier this month. The chancellor told Sir David he would escalate the results of a consultation on reform to the methodology behind Retail Price Index. (One of the current measures of inflation for many financial products, including pension schemes, Gilts, and multiple financial products.)
Hetty Hughes, a policy adviser at the ABI, believes the inflation measure will remain named “RPI” to maintain the legality of gilt contracts, the methodology will mirror the Consumer Prices Index plus housing costs, known as CPIH.
2. The chancellor could set out a longer-term vision for fixing the public finances, including through higher taxes. Changes are unlikely to be announced until the Budget 2021, but these could be progressive or regressive in nature. The most common assertion include a change in capital gains tax after a government review, tax relief on pension contributions, a freeze and future nominal increases on Public Sector Salaries, reduced foreign aid, reduced and more restrictive public services (receiving less funding). The list continues but to be clear, for now, these are in some cases, just speculation and expectation rather than verified and confirmed.
3. Road pricing could also be used to plug the hole left by fuel taxes, after bringing forward the ban on the sale of petrol and diesel cars to 2030.
Investments in A Changing World
The world continues to surprise, with the pandemic in full force and the effects on most economies. There is the potential for more surprises and market volatility; and therefore, we constantly review and remain forever vigilant.
We are very optimistic for the future but this is in part due to the results achieved through this pandemic and beyond, for you as our client. Our belief is, these results help to endorse our systematic approach with tactical overlay to investing, where we focus on multi-asset investing, carrying out sensitivity analysis and targeting total return strategies.
We believe this will give you more grounds for confidence, and especially true as the longevity of investment increases. We see these times of uncertainty as an opportunity from an investment perspective, over the business and economic phases ahead.
Watch this space – the only guarantee we have is “things will change”.
On behalf of all at Waverley Court Consulting Ltd.
Be well, be safe – All our very best
This communication provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.
