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The approval of several vaccines opens the door for a way out of the pandemic. However, the path ahead remains a long one and has to contend with a rise in infections in the short term. The investment case for EM equities nevertheless remains strong, in particular given the large index weight of Asian countries that managed the crisis well. Fuller valuations imply that we are now more cautiously optimistic.
The world remains in the grip of the COVID-19 pandemic and its recent resurgence, while simultaneously looking forward to its much-anticipated demise and placing heavy bets on an inflation-less recovery. As a result, financial markets scaled new heights during Q4 2020, shattering several records: US and EM equity indices hit record highs, base metals rose to decade highs, while crude oil and inflation expectations posted strong gains as well. How did this confluence of events come about? Several critical events have occurred since our last Quarterly:
This latter development has two important consequences: 1) greater fiscal support in the US will have a positive effect on domestic demand, which bears on the rest of the world’s economies and 2) it will revive the reflation trade and boost US Treasury yields (the 10-year yield is now above 1%).
*The publication reflects asset performance up to 31 December, 2020, and macro events and data releases up to 8 January, 2021, unless indicated otherwise.
The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.
City of London Investment Management Company Limited (“CLIM”) is authorised and regulated for the conduct of investment business within the UK by the Financial Conduct Authority (FCA), registered as an Investment Advisor with the United States Securities and Exchange Commission (SEC) and regulated by the Dubai Financial Services Authority (DFSA). Registered in England and Wales No. 2851236. Registered Office: 77 Gracechurch Street, London, EC3V 0AS, England.
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