“The darkest hour is just before dawn.”
Thomas Fuller, re-phrasing Psalm 46 vs5
Many people might interpret the Government’s imposition of fines on those who test positive but refuse to self-isolate as a warning not to take a test unnecessarily: but it does also reflect the fact that the second spike is swiftly coming upon us, and we must take it seriously. The news from Spain shows a severity not far off the first spike already and, for both North (that is, south of the Canadian border) and South America the situation continues to be dreadful.
But, following their autumnal custom of looking ahead to the coming year, the markets are starting to take a view on life post-vaccine: and it’s quite an optimistic view. So please read on - and listen to our programmes this week on both investment and property - as we look at some major changes for the world in 2021.
But first – the vaccine. We don’t often provide links to BBC Radio 4 podcasts on Share Radio, but last Tuesday there was a very good episode of ‘The Life Scientific’, with presenter Jim Al-Khalili interviewing Sarah Gilbert of Oxford University. For people who want the straight facts, without politicising or hype, it’s an excellent story of the journey so far; and a strong indicator that their vaccine will be rolling out early in the new year, if not by Christmas.
So, there’s not long to wait and markets are looking ahead to 2021: post-Brexit, post- American presidential election, more flexible working with less focus on cities, heavyweight investment in a green economy.
One of the clearest indicators for the markets post-Brexit is the London Stock Exchange’s decision to sell Borsa Italiana, in order to keep its deal for Refinitiv on track. There was much Euro- fanfare in 2007 when the Italian stock market joined with London: now Euronext is the preferred bidder, as the LSE looks to fulfil a more international role.
There could be major opportunities across the Atlantic, whoever wins the US election. If it’s Biden, international trade will once again be a collective and not binary affair. If it’s Trump again, one of the main ways for American investors to satisfy their deep and growing appetite for good quality ESG investment will be here in London.
There was an interesting comment in the Times last week focusing on Boris Johnson’s appetite for building the green economy: that, although he is currently weighed down with Brexit and Covid-19, he has a real drive to set a major green infrastructure build underway. In particular, he sees hydrogen as the key ingredient for transforming home heating and long-distance transport.
Then there’s the residential property market. The substantial move to the suburbs and further afield shows that the desire to move to a new way of living is not just a Covid-19 ‘flash-in-the-pan’: the market is showing the way forward. This, however, does not include the commercial property market, which is likely to remain in the doldrums for years.
Of course, sceptics will claim that rising asset prices are a phenomenon of ultra-low interest rates, and that the tragedy of swiftly-rising unemployment and sky-high public debt will bring us all down to earth. But as I’ve often said in this commentary and, indeed, for several years before the inception of Share Radio, inflation will not take off due to the productivity of the digital economy.
There will be a Brexit trade deal, there will be a vaccine: and, once these crucial ingredients are in place (4-5 months from now), the economy will swiftly recover. Infrastructure spending will restore employment, and day-to-day activities and local business will start getting back to normal.
So, the market is right to take a sceptical look at the doomsayers. In late 1999 the FTSE100 reached a high of 6930, an absolute level not overtaken for over 15 years thereafter. Its level now hovers around the 6000 mark, just half the level of that inflation-adjusted 1999 high. Plus, over the past four years the UK market has provided the lowest total return of any developed economy. This is indeed a low point.
And these are certainly dark times: but, as the saying goes, the darkest hour comes just before dawn.
Gavin Oldham OBE