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Investment Commentary Quarter 1 2021



Granite Coast Ltd - Cambridge Financial Planners


Welcome to 2021! The last 12 months have been eventful with significant parts of economies shutdown or heavily restricted. We finished 2020 with a smaller global economy than we started, yet there is a sense of optimism that we can get back on track at some point in 2021.


The prospects for 2021 start mixed, with the following thoughts:


2020 market recoveries:


Quarter on quarter GDP


The charts follow on from the graph used in our Quarter 3 2020 Investment Commentary, which charted global market recoveries, including the significant recoveries seen in the spring. All major economies grew in the third quarter of 2020, however what is not identified in the quarter analysis is how poor the UK relative performance has been. This is in part due to the make-up of the UK economy with its focus being more heavily weighted towards services, hospitality and consumer spending in comparison to a number of other countries. Logically for the UK to complete its recovery we need an open economy free from Covid-19 restrictions.


United States – Biden wins, but what about the Senate?


The US election process was messy; however, the result is that Joe Biden will be the next president of the United States. This will mean fewer tweets and more collaboration. As for how much real power Biden, a Democrat, will have depends on which party has control of the Senate. There are two Georgian senate seats that are in a runoff and are to be contested on the 5th January 2021 (result pending at time of writing). These results will help determine whether the Senate majority will be held by the Republicans or in event of the Democrats winning both seats being effectively controlled by the Democrat vice president.


Foreign policy is likely to change significantly as the US intends to work with its allies and ‘like-minded countries’ to continue to put pressure on China. The theory is 60% (developed world GDP) can put more pressure on China than 25% (US alone). China of course has other plans. Please see the Asian section of this Commentary for further details.


Clean energy is on the agenda. Mr Biden’s manifesto promised executive orders at the start of his presidency to commence a significant clean energy strategy and the setting of carbon enforcement mechanism before the next election. If he is able to live up to his agenda, it may create some exciting investment opportunities for the future.


Europe – There’s something about Merkel


From July 2020 to December 2020, it was Germany’s turn to have the EU presidency. They have overseen Brexit with Ursula von der Leyen as the head of the European Commission and managed to gain an agreement to implement a pan-European Covid-19 rescue deal from the 27 EU members. The benefit of Germany’s strong leadership has also been demonstrated by Angela Merkel, the Chancellor of Germany since 2005.


Prior to 2020, Mrs Merkel’s lustre was fading and she had promised not to stand for a fifth term as her party’s appeal began to reduce. Two things changed the mood:



The early success in keeping deaths down, its strong fiscal response and Mrs Merkel’s calm bearing restored her popularity. As the strains of Covid-19 tested Europe’s bonds, she broke the German taboo against common debt and agreed to a €750bn EU-wide fund to aid recovery in 2021 and beyond. She persuaded the troublesome governments of Poland and Hungary to sign on to new rule-of-law provisions in the EU’s budget rules and helped arrange a tightening of the EU’s climate targets.


The next Germany election is September 2021. Hopefully the next leader will maintain stability in Europe’s strongest economy. But this is a tough ask. Mrs Merkel has not successfully groomed a successor.


UK – Britain makes few friends with its trade deal


Between August and October 2020, we begun by seeing large parts of the UK economy trying to reopen, however infection rates then began to rise again forcing tighter restrictions and England ended October on the cusp of entering lockdown 2.0. Weekly estimates from the Office for National Statistics indicated that the rate of unemployment increased by 0.7% to 4.9% (1.69 million people) during that time, when compared to the three previous months.


The Bank of England forecasts that the unemployment rate will continue to increase in 2021, with the job market in an uncertain state of fragility due to the potential for further surges in infections, lockdowns and the risks to jobs as a result of Brexit negotiations being concluded. However. there are hopeful glimmers on 2021’s horizon following the launch of the vaccination program before Christmas, which could enable more businesses to reopen confidently and in doing so dampen the rising rate of unemployment.


With the Brexit transition deadline of the 31st December 2020 rapidly approaching, a new trade deal was struck on Christmas Eve, with both sides concluding negotiations on what they agreed to be a level playing field. This resulted in Sterling trading at just below its 2020 peak against the US dollar and also strengthening against the Euro, gaining 0.4%.


Whilst the UK and EU have begun this new phase of their relationship on identical rules, this could change in the future if either side is not satisfied with any changes to the rules, which may then lead to tariffs being imposed.


Agreeing a deal, meant that a no-deal exit was avoided, which the Office for Budget Responsibility warned could have reduced the UK’s economic output by 2% in 2021 and cost more than 300,000 UK jobs. Now the deal has been done, Boris Johnson is focused on the “opportunity to show what ‘Global Britain’ can do”.


Asia – Fractured region unites


In Asia, one of the world’s largest deals has been inked. The Regional Comprehensive Economic Partnership (RCEP) rounds off almost a decade of talks between 15 Asian-Pacific nations, integrating their markets for goods. The countries account for about a third of the global population and economic output, making the agreement a huge landmark in global trade.


It is important for geopolitics as well; it’s the first such tie-up between export powerhouses Japan, China and South Korea, who have been less than friends for hundreds of years. Nations that trade with each other, tend not to fight each other. A country notably not included in the deal is India who had been part of the discussions for eight years until pulling out late in 2019, citing concerns about India being flooded with Chinese exports. There are options for India to join later, possible echoing the UK’s relationship with Europe.


Countries Participating in The RCEP


Countries participating in RCEP


RCEP eliminates 90% of tariffs between the nations, with the standard carve-outs that lobbyists insist on in agriculture and services. The most valuable aspect of the deal is that it removes many ‘non-tariff barriers’ that exist to trade, such as the certification requirements and myriad rules that chop and change between jurisdictions. We have talked about these a lot during our Brexit coverage because they are where the true costs of trade lie, dwarfing the tariffs that make the headlines.


As the West has become ever more suspicious of free trade, the East has eagerly embraced it. We think this is likely to mean the marked difference in GDP growth is here to stay.




2020 was a very unusual year in the world of investments and economics. Things usually go wrong through pressures and imbalances that have built up in the global economic system, Covid-19 created an environment where many businesses and economies cannot operate to their potential. This creates opportunities and from this commentary, China, US and Germany are in a position to exploit.


"There are decades when nothing happens; and there are weeks when decades happen.” - Vladimir Lenin


Granite Coast are Cambridge based financial advisers.  If you have any further queries about the above or require any other advice please do not hesitate to contact us or 01223 853 599.


(Sources – Financial Express, Office for National Statistics, Trading Economics, , The Economist, Financial Times, BBC News, UK-EU Trade and Cooperation Agreement – Summary,,