Six months ago, Julius Baer predicted that the global economy would see a ‘V-shaped’ recovery from the dramatic shock of Covid-19 experienced by financial markets in March 2020 followed by a steady recovery. That recovery is currently taking shape, spurred on by unprecedented government spending that is boosting economic activity.
Julius Baer’s Market Outlook 2021 spring event, featured a presentation via video link from Christian Gattiker-Ericsson, Julius Baer’s Chief Investment Strategist and Head of Research & Investment Solutions, who spoke about the past six months’ market performance and what the future held for investors.
Unable to attend in person due to travel restrictions, Christian nevertheless offered insight into the prospects for the global economy and specifically the future of the UK.
Fiscal spending increase
Macro-level interventions, said Christian, were one of the main drivers of positive change and the recovery being seen in economies around the world.
“We have seen unprecedented fiscal interventions from governments in the last year. In the US for example nearly a quarter of national income has been earmarked to aid the recovery of the domestic economy and we have seen a complete U-turn in the way the Eurozone approaches fiscal spending – shown most obviously by Germany leaving austerity behind and also introducing Eurobonds – a major support to the whole continent.
“Government intervention was absolutely necessary because Covid-19 was not a systemic issue but an external force, and the latest data show that in many ways it has had more of an impact on economies than previous recessions including the 2008 crisis and the energy crisis. This is because it has affected all areas of the economy. In the US job market for example, for the first time we saw all sectors across all of the economy experience a sharp downturn”.
However Christian also noted that as Covid-19 was not a systemic issue, he was confident the global economy would recover.
“We can overcome external forces, and certainly, with the impact of fiscal interventions and the optimism brought by vaccines and economies reopening, the outlook for investments is positive and we expect to see a steady recovery with a return to pre-Covid levels of growth in most areas by 2022:.
Diversify to beat inflation
Craig Allen, Head of Investment Management at Julius Baer Guernsey, also addressed the audience with a view on what decisions investors should be making as we emerge into a post-Covid world. The key issue, according to Mr Allen, is that of inflation.
“We view inflation as the low bar for our client’s investment portfolios. With inflation moving at the 1.5 to 2% mark at the moment and looking set to continue above interest rates, investors have to introduce some risk to their holdings in order to outperform it. Long-term bonds and cash are therefore not sufficient to create a return and in real terms, are resulting in lost value for clients.
“We are therefore recommending our clients invest in a diversified portfolio of global developed and emerging market equities with a true spread of geographies and sectors”.
Positive outlook for the UK
Craig also noted that investors looking to the UK as their ‘home’ market, could start to be more confident.
“Despite several years of underperformance relative to global markets, the UK is making a recovery. With the economy re-opening, a strong vaccination program in place and decisions having been made on Brexit, confidence is returning. We have definitely seen a rotation in the market pre and post the 9 November 2020, the day the Pfizer vaccine was announced. There are also certainly some equities that have been under the radar that will start to perform well, particularly in the healthcare sector as we look to solutions to the Covid-19 crisis”.
Christian agreed: “We are expecting a short-term ‘catch-up’ recovery for the UK, with an 18% year-on-year increase in GDP, followed by a steady-as-she-goes period of growth”.
The outlook for green investments came with a note of caution. While Christian was keen to stress that overall the switch to renewable energy was a positive one, he argued that investors should be wary of certain stocks in the sector which currently had very high valuations.
Julius Baer’s bi-annual Guernsey Market Outlook event was hosted on Wednesday 21st April. Julius Baer has had a presence in Guernsey for more than 30 years.
