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Investment Commentary Quarter 2 2021



Granite Coast Ltd - Cambridge Financial Planners


Investment markets have been active in first quarter of 2021. Covid-19 vaccination rollouts have commenced with varying degrees of success, and businesses look forward to a post Covid-19 world. 


A number of governments have spent a significant amount of financial resources to support their economies and populations in the last 12 months (as shown below).


The Size of Global Stimulus Packages – February 2020 to March 2021

Source: Statista


In the short term, the stimulus packages have been successful.  However, it has created unusual circumstances that will have consequences for the future.



Markets are debating how much inflation will be created when economies successfully reopen.  Analysts are pretty much in consensus that inflation will increase through this year, however the speculation is:


These questions relate to events that will occur in 2022 and beyond.  Speculation regarding them now will influence investment markets now and their returns.


The situation today is that inflation is below target in major economies and has been so in recent history. However, speculation about the future has created a significant shift in a relatively short period of time concerning government debt, in particular in the US. The graph below shows the change in yield of US government debt since the start of the year.  This is the markets expectation of inflation.


US Government Bond Yields

Source: Trading Economics


This may not look a significant change, but a 20-year US bond would have lost 15% in value since the start of the year. Rising Government Bond yields will have will the following effects:



The events that have occurred so far are not particularly concerning and are part of normalisation from the unusual circumstances created by Covid-19.  However, sustained inflation at a rate above 3.5% would be seen as damaging to global growth and business over the medium term. With inflation at 1.7% in the US and 0.4% in the UK the trend is upward.


United States – Stimulus Powers The Economy

The latest monthly employment report, published on April 2nd, painted an impressive picture.  In the month of March, America created more than 900,000 jobs. That figure is the strongest since August 2020 and is a fair reflection of the strength of the US economy in the first half of March.  Unemployment is improving as can be seen below.


US Unemployment Rate

Source: US Bureau of Labor Statistics


Back in January the final piece of the US electoral jigsaw was completed when the Democrats took control of the Senate.  This has paved the way for President Biden’s huge $1.9 trillion stimulus package. So far, 156 million stimulus cheques have been sent with a value of $372 billion.  It is estimated that 45% will be used to pay bills, 32% paying down debt, 11% for investing and 12% for nonessential spending.  It is hard to tell at this stage how reliant the economy is on this money, but expectations are that with falling unemployment a large stimulus package and a large vaccination program will keep the worlds largest economy on track for good growth in 2021.   


Europe – It’s a Muddle

In our last commentary we discussed how Germany, led by Chancellor Angela Merkel, had navigated Covid-19 issues in 2020 relatively well. Since the start of the year things have not gone well.


On the 23rd March, after marathon talks with the leaders of Germany’s 16 states, Mrs Merkel announced a strict five-day lockdown over the Easter period.  Leaders had become concerned that the UK variant was out of control and a significant reset was required as infections were increasing.  This plan reportedly infuriated business owners, who were concerned about the logistics of an extended shutdown and the short amount of time to prepare.  Thirty hours later, Mrs Merkel announced the plan was scrapped, and not only apologised, but begged forgiveness.  This move has distanced Merkel from Germany’s regional leaders and demonstrates that Germany’s politics is becoming increasing dysfunctional.


Europe has long relied on Germany and adding this to the bungled European vaccination rollout strategy and disagreements on how the stimulus package can be spent makes Europe, at very least, look complicated.


UK – Brighter Prospects

2020 was challenging for the UK economy, which shrank by a record 9.9%, and was worse than comparable nations.  The UK has a larger consumer services sector than most other countries, so it’s been more sensitive to lockdown measures.  Key industries in the UK were already ailing from the long drawn out Brexit process.  The UK’s impressive vaccine rollout and subsequent dramatic fall in COVID-19 cases, as well as additional support measures announced in the Budget, are driving investment confidence in 2021.  This puts the UK in a strong position, at least compared to the rest of Europe.  Post-Brexit, exports and imports to Europe are down but they are starting to recover.


The country’s rapid vaccination programme has boosted recovery hopes, and the Office for Budget Responsibility has upgraded its forecast; it now expects the UK economy to recover to its pre-pandemic size by the third quarter of 2022 — six months earlier than it predicted in November. We see better prospects for UK equities, as overseas investors who sold their UK investments in the last few years start to return.


An early sign of confidence in a country is its currency.  Simply put, if the currency is desirable it goes up in relative value and if it is unwanted the relative value will fall.  The graph below shows how much other major currencies have fallen in value relative to the pound in the last 6 months.


Major Currencies Over The Past 6 Months



Source: FE Analytics


The pound could also continue to rally from its historically depressed levels over the long term, and the additional boost from the return of overseas investors could increase our currency desirability further.  Still, we do not expect a flood of investment into UK equities and the valuation gap relative to other markets looks likely to remain.  In other words, we see better opportunities elsewhere.


Asia – South Korea

It is well known that China has navigated Covid-19 well after being the country of its origin.  The power house of South Korea has also put itself in a strong position. South Korea learned from its mistakes in the MERS outbreak of 2015, by increasing diagnostic capacity, improving sharing between government departments and having a vigorous contact tracing strategy.  This has kept deaths below 2,000 for a country with a population of 52 million.  The result being that the South Korean economy only shrank 1% in 2020.  Like other nations, South Korea has announced a stimulus package, calling the package a ‘New Deal’.  The deal contains two main strategies: Digital investment and Green investment. South Korea already has the intellectual property and skills from international giants like Samsung and LG to take advantage of this stimulus, making it an interesting place to invest.  The country has also committed to being Carbon Neutral by 2050 and investing significantly in hydrogen fuel-cell vehicles.  There are significant gains to be made here as Korea is currently the world’s fourth largest coal importer.

Perhaps we will be driving hydrogen powered Hyundais or Kias in the near future.


Japan – Keeping quiet

Investing in Japan has been difficult for a number of years.  An ageing population and low birth rates are headwinds for economic growth.  Japan’s oversized national debt at 266% of GDP (Gross Domestic Product), (in comparison to 100% GDP in the UK), gives an impression of unsustainability regarding the economy. To put Japan’s debt into numbers, it is 1,392,200,000,000,000 Yen.  Japan has also struggled to generate inflation and has gone through several periods of economically damaging deflation in the last 30 years. Setting an example that many other economies would not wish to follow.


Lately Japan has kept a low profile. Their Covid-19 infection rates are relatively low in comparison to Europe, US and the UK. Japan’s stock market contains a number of good-quality and technologically advanced companies that have proved their resilience in the last 12 months.


Some may view that the global reset that Covid-19 has provided is just what Japan needs to become a stronger investment option and the delayed Tokyo Olympics will be part of that catalyst.



As vaccination programs have rolled out across the world, economic attention has moved from the near term (the next few months) to the medium term (the next few years). Periods of change increase risk, but also increase opportunity. It is one of the more interesting times to assess investment prospects.


“Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” –Warren Buffett


(Sources – Financial Express, Office for National Statistics, Trading Economics, The Economist, Financial Times, BBC News, Bankrate)


Views and opinions expressed are presented for informational purposes only and are a reflection of Granite Coast’s best judgment at the time this commentary or other content was compiled.

The information and opinions contained in this commentary have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions.

The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions.

Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss.

A number of governments have spent a significant amount of financial resources to support their economies and populations in the last 12 months (as shown below).


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.