Market Update - December 2020

Financial markets have certainly had their ups and downs this year. Interest rates on savings are at record lows, while some share markets have reached record highs. Logic suggests that neither can last, but 2020 has been a year that's been anything but logical.

The government's response to the coronavirus has meant the economy has taken quite a hit this year. To their credit, they've worked hard with the central banks to find ways to soften the blow, such as lowering interest rates and creating stimulus and rescue packages. This course of action has been of enormous assistance to businesses and share markets alike.

Then there's the good news about the vaccines being rolled out in the UK and the US. Australia hasn't approved a vaccine quite yet, but it looks like that will happen early next year. At this point, nothing is set in stone, but I have to say, it's testament to the expertise of the pharmaceutical industry that they've been able to produce vaccines so quickly.

Concerns are growing over the new, more infectious strain of the coronavirus that's tearing across the UK. On the plus side, the vaccines have used brand-new technology that adapts quickly to mutations of the virus.

In early trials of the Pfizer vaccine, there has been a 94% success rate, which is well above the expected rate of around 60%. But there are concerns that the vaccine has to be stored at minus 70 degrees Celsius at all times, which will make the rollout more complicated than was hoped.

It's important to mention that announcements have been made by the pharmaceutical companies that have manufactured the vaccines, rather than independently published peer-reviews. As a rule, most vaccines are tested for years or even decades before being rolled out to the general public. However, the US and the UK haven't had time on their side, so emergency approval has been granted. This means there are unknowns around the effects of the vaccine, which we're just starting to hear about in the UK. Allergies are one such side-effect.

Nonetheless, getting a vaccine so soon and even getting one at all is a fantastic achievement. Particularly when it was only January when the genomic sequence became available. Even so, I'll be surprised if the vaccine rollout runs smoothly. So far, this virus has left theories and predictions in tatters. Both the theory of herd immunity and the prediction that the virus would burn itself out in the northern summer were proven wrong.

Today, global infections are at an all-time high. And with the UK's new strain reported to be 70% more infectious than earlier strains, a vaccine is more critical than ever.

Despite these concerns, I firmly believe that the rollout of an effective and safe vaccine will lift growth assets and increase shares to even higher levels than we're seeing today. At the same time, it's important to remember that being too cautious will lead to missed opportunities. There are likely to be some false starts as the market moves from optimism to concern. However, when you invest in the share market, there will always be uncertainty.

At Clearwater, we're very well prepared for the situation ahead. We've spent a lot of time this year positioning our portfolios to make sure they'll gain from the benefits of the vaccine. Having said that, to ensure we deliver the very best returns on your investment, we're always ready to change our allocations within the portfolio if the situation changes. And if 2020 is anything to go by, that's not beyond the realm of possibility.