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The election of Joe Biden to the US presidency and the apparent early advent of a successful Covid vaccine represent a ‘goldilocks’ scenario for the market. It will likely boost investor appetite for risk assets even if the deployment of the vaccine and the actual economic recovery may take some time to materialize.
The hotly contested and highly uncertain US election came to dominate investor sentiment during the end of Q3, shifting focus away from the relentless spread of COVID-19. However, both for the new US President and for the wider market the issue will soon return to the forefront. After all, infections in the US have surged to new all-time highs of over 140,000 per day and globally, infections doubled to over 28 million during the August-October period (bringing the total to over 50mn). Infections rose rapidly in both Developed (DMs) and Emerging Markets (EMs) but, more tellingly, the fatalities continued to climb in EMs during the three-month period, whereas they declined in DMs. Yet, prospects have now been fundamentally altered by the announcement of successful trials of a COVID-19 vaccine by Pfizer/BioNTech and possibly by others soon.
*Per million of population. Seven-day moving average.
Source: Johns Hopkins University
Nevertheless, the outcome of the US elections is a key factor for markets too as it promises greater US engagement in multilateral institutions and arrangements, more decisiveness in the fight against the pandemic and climate change, a retreat from trade protectionism and a degree of fiscal expansion. Markets have come to embrace the unexpected ‘gridlock’ scenario, as it appears to forestall some of the less desirable policies contemplated by the President-elect such as highly progressive tax increases, increased (tech) regulation and the appointment of far-left cabinet members.
The outlook, which rests to a large extent on these two key factors, thus divides into two distinct periods. The short-term, which is defined by the interim period until 1) the inauguration of the new president at end-January 2021 and 2) the release and widespread distribution of a vaccine, which is unlikely before H2 2021. During this period, infections are set to continue to rise further or new restrictions may have to be put in place and economic activity will likely slow as a result. Only once a new leadership is in place, success of the vaccine has been confirmed, its production ramped up and a distribution network has been put in place can markets look forward to a normalization of economic life.
*This publication reflects asset performance up to 31 October, 2020, and macro events and data releases up to 10 November, 2020, unless indicated otherwise.
The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.
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