What to expect in year two of the COVID-19 pandemic

As we enter the second year of the coronavirus pandemic, the virus is steadily gaining momentum. In many countries, the rate of infection and death is heading upwards. Health services are overwhelmed. Experts are predicting that the situation will get worse before it gets better. And hopes are pinned on the vaccination program bringing some sense of normality back into our lives as we edge further into 2021.

New president. New approach.

The good news is that with Joe Biden now president, the US can look forward to the roll-out of a vaccination program championed by top scientists and medics. Nonetheless, this will be no mean feat, with a nation divided by four years of misinformation and confusion. However, with the production of two vaccines that appear to be more effective than we could have hoped, we can keep our fingers crossed. If people continue to use masks and follow social distancing practices, we may all start to feel a little more confident about the future by mid-year.

Cautious optimism.

Confidence, however, is reliant upon a successful vaccination program. And that means enough doses for all and no complications along the way. Last week's EU decision to establish export controls on COVID vaccines from Europe has thrown a spanner in the works. If this happens, it could spark a collapse of the global roll-out, which would have far-reaching effects across the world. We have to hope that the new South African strain of the virus is not more virulent than the most recent UK strain. And that each mutation of the virus can be countered by the vaccine.

Achieving herd immunity.

If the vaccine's roll-out continues without a hitch, some scientists hope that we'll reach herd immunity once 50-70% of people are vaccinated. But a lot can go wrong in the meantime. There could be a backlash if people have a coincidental health event after receiving the vaccine. And if fear escalates, and spreads via social media, there could be a negative impact on the vaccination program, which would be problematic. We need the virus to die out because it can't find a host. And for that, we need mass vaccinations. Something that may be harder to achieve in countries like Australia, where concerns about the safety of the vaccine together with a sense of relative protection from the virus may lead to a ‘wait and see’ approach. Furthermore, we need the vaccine to prevent infected people from infecting others. The problem is, we don't know whether either vaccine can do that quite yet.

Living with COVID-19 long-term.

There's little doubt that COVID-19 will be part of our lives for many years to come. Outbreaks will continue to occur in clusters of people who lack access to the vaccine, and in groups of friends and families who are distrustful or hesitant to get vaccinated. On top of that, what remains to be seen is how our bodies react to the vaccine. Scientists find it hard to predict a fixed outcome because our immune systems are themselves unpredictable. Immunity to some viral diseases can be lifelong - as with say chickenpox. While our immune systems only remember how to deal with other viruses for less than a year.

Uncertainty ahead.

While the global vaccination program is being touted as a guaranteed solution, the truth is that many uncertainties and challenges lie ahead. Predictions about economic recovery rely heavily on keeping the virus under control. And that, as we have seen, is a world of ifs, and buts. What's more, the far-reaching consequences of restrictions and lockdowns on the global economy will continue to reveal themselves as time progresses.

Unknown effects of growing inequality.

One such impact is that lockdowns across Europe and the US have resulted in more women leaving the workforce than ever before. The additional weight of home-schooling children has led many who can afford it, to focus purely on their children's education when schools are closed. This, of course, will have a knock-on effect on those children who do not have a parent who can give up work. That fact, along with the absence of a computer at home, will widen gaps of inequality, creating lifelong disadvantages for some children. And affecting our future global economies in ways yet to be seen.

Keeping an eye on risk.

With so much change going on globally, our investment committees, portfolio managers, and CEO meet regularly to assess the roll-out of the global vaccination program and other significant events that affect the markets. While we expect volatility in the markets to continue into the foreseeable future, our focus is to look out for your investment at all times. Our well-diversified portfolios continue to perform despite the challenges the virus has created. And as we enter the second full year of the pandemic, our DMG Diversified Portfolio has proven its ability to target investment growth while reducing risk. If all goes well and the markets respond positively, so too will our portfolios - particularly the Clearwater Dynamic Portfolio, with its higher exposure to growth assets.

by Gary Lucas.