9 February 2021
Periods of strong returns in stockmarkets have, historically, tended to be followed by periods of lean returns. Is this time going to be different? The backdrop is certainly very unfamiliar: a once-in-a-century event decimating economies, offset by trillions of dollars of government stimulus all over the world, itself supported by additional trillions of dollars of central bank money flowing into capital markets. One of the strangest experiences of the past year has been watching many asset prices rise to all-time highs while economies are, in some cases, 10% smaller than their pre-pandemic levels. At least during the internet boom – the last time that equity valuations reached these levels – stock prices were supported by a surging economy.
But the global economy is surely going to surge; it’s just that it’s not happening yet. Consumers all over the world have been forced to save, unwillingly, and all those enforced savings will soon be available to stimulate the economy – truly a stimulus programme every bit as big as the government’s own fiscal support. When that consumer frenzy hits, the argument goes, economic records will be shattered, company profits will be propelled to lofty heights and, eventually, even government coffers will be restored to normal. Moreover, governments will not be taking any chances: economic support will still be in place when consumers start to splurge, adding fuel to the fire. Consider, for example, that President Biden’s latest stimulus proposal would allow $1,400 payments to go to all single people earning up to $75,000, or to married couples earning up to $150,000. This resurgence-thesis is now so prevalent that it has been given a name: the “Roaring Twenties”.
Turning to other concerns: had it not been for the pandemic, the focal point for investors over the last year could well have been the deteriorating relations, both economic and political, between the US and China. The pandemic struck just after the trade war appeared to have been resolved with the “Phase One” trade deal. Since then, however, strife between the two superpowers has ballooned, and now encompasses executive orders targeting Chinese companies, trade blacklists, political blacklists, and overt geopolitical rivalry (most recently with the US selling armaments to Taiwan). Not even the Phase One deal has survived intact - its trade targets now look highly unrealistic.
The US is not the only English-speaking nation that has a serious Chinese problem: relations between Australia and China soured last year after the Australian government supported a call for an international inquiry into China’s handling of the pandemic. Canada’s internment of a leading Chinese businesswoman in 2018 prompted a political stand-off. Now the UK is fast heading in the same direction: over the last year, denunciations of Hong Kong policies, changes to the BNO passport programme, plus BBC reporting on the early days of the pandemic in Wuhan and on the situation in Xinjiang have angered the Chinese government. Last week, the UK revoked the broadcasting licence of the Chinese state’s CGTN television network. How the PRC government will retaliate is unclear, but it will retaliate, and it would not be a surprise to see some, or all, of the BBC’s foreign journalists in China expelled.
Tesla announced that it had invested $1.5 billion of its surplus cash in Bitcoin, which promptly surged on the news. This overturns a longstanding trend among corporate treasurers to use only the least volatile, most reliable investments for their companies’ spare cash. It’s thought that the decision signals Tesla’s intention to begin accepting the cryptocurrency as a form of payment for cars.
Electronic Arts (EA) Inc., the American video game company, is set to buy mobile game developer Glu Mobile Inc., in a deal worth $2.4 billion. Glu Mobile typically makes free-to-play games, making money on micro-transactions. They are known for casual games, celebrity-themed games (including Kim Kardashian: Hollywood) and sports games among others.
DoorDash Inc., the American food delivery service, has said it is acquiring robotics startup Chowbotics. Chowbotics' food automation technology can help put together salads and poke bowls, and other foods. DoorDash is reportedly looking at how it can deploy it across restaurants, with ideas including using the technology to help restaurants expand their menus without the need for more manpower.
Walmart Inc., has announced it will acquire technology from Thunder Industries, a company that uses automation to make digital ads, as it continues efforts to become a power in ad sales. Walmart's plans include a self-service tool that can help marketers create ads, and will be helped by Thunder's technology.
This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.
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