Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
Climate change, ESG, artificial intelligence, productivity, the rise of China and returns from bonds are some of the secular trends investors should follow. The past fortnight has seen important developments in two of these areas.
AlphaFold 2, one of Google’s AI networks, made a breakthrough in protein folding – although seemingly niche, it may unlock a new wave of investment and innovation in healthcare. A Chinese quantum computer performed a calculation in 200 seconds that would have taken a regular supercomputer 2.5 billion years to complete. Both the US (in Google) and China have now achieved quantum supremacy, which may help boost productivity. To quote Nobel Laureate Paul Krugman: “productivity isn’t everything, but in the long run it’s almost everything.”
The trouble is, whilst investors should spend most of their time thinking about these longer-term issues, the here-and-now of news flow demands immediate attention. The hot topics of today remain vaccines, Brexit and stimulus packages.
The UK began distributing the Pfizer/BioNTech vaccine this week and news outlets are now producing running totals on how many people have been vaccinated, not just the increase in COVID-19 cases. Last night, the US FDA’s Advisory Committee announced that the Pfizer vaccine passed their checks. If the FDA heeds the committee’s advice, emergency use may be granted as early as Saturday.
Boris Johnson and Ursula von der Leyen met Wednesday night to break bread and break new ground on a Brexit deal. The meeting signalled both sides are willing to make concessions that lead to a deal, despite the No-deal sabre rattling of the past few days. As mentioned in a previous update, it was likely Johnson would remove the contentious aspects of the Internal Market Bill to help secure a deal, which he did this week.
There is bi-partisan support for a fourth stimulus bill in the US, of around $900 billion, which has support from senior Democrats. The White House has indicated support for a stimulus bill of that size too.
The positive news flow has pushed investor sentiment to elevated levels, so retaining exposure to risk-off assets seems sensible, should sentiment reverse over the next couple of weeks. However, as the world moves into 2021, investors should consider retaining a full weighting to equities and make a New Year’s Resolution to leave some space, amidst the news flow, to consider secular trends that will affect their portfolios over the next 20 years.
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