Price is right as markets take share of the spoils

INVESTORS who assumed the pandemic would play havoc with share prices in 2020 will be astonished to see stock markets end the year in remarkably fine fettle. Shares beat every rival asset class once again, which is good news for anyone who has exposure to the stock market through a pension or Stocks and Shares Isa.

It will come as a blow for those who shunned equities thinking they were too risky, or panicked and sold up during the crash in March.

2020 was yet another dreadful year for cash, as the Bank of England sacrificed savers on the altar of low interest rates once again.

Yet investors should not be too smug. The only reason markets avoided a total meltdown in March was that the US Federal Reserve and other central bankers, including our own, flooded the world with fiscal and monetary stimulus.

Without those multi-trillion-dollar bailouts, 2020 would have been a wasteland. As the UK’S vaccination programme gets into gear, will stock markets win again in 2021?

TECH TONIC

AJ Bell investment director Russ Mould said it has been a year of two halves for stock markets, which were overrun in the first six months, but fought back in the second half: “Despite the pandemic, global equities were the best place to put your money, rising 13.8 per cent in the year to December 11.”

He said equities were boosted by government and central banker policy support, and hopes that Covid vaccines would trigger an economic recovery in 2021.

The US market raced away thanks to massive Fed stimulus and the growth of tech titans such as Facebook, Netflix and Zoom.

The country now boasts four tech companies with a valuation of more than $1trillion: Apple, Amazon, Microsoft and Google-owner Alphabet.

Mould said it is no surprise to see technology romp home as the sector of the year. “Many tech firms were seen as winners, helping companies or individuals cope with lockdowns and the effects of the virus.”

Electric carmaker Tesla put on a real spurt with its share price rising from $70 in March to $625 at the time of writing. The Technology and Telecommunications sector rose an astonishing 42.1 per cent in the year to December 9, with Greater China in second place at 29.4 per cent and Asia-pacific and Japan also performing well, according to Refinitiv data.

RISK ON

Latin America, the Middle East, Africa and Asia played catch up in the second half of the year, as investors took on more risk to seek a higher return. It was bad news for the UK though, which has been beaten by almost every other major market.

Mould said the FTSE 100 was hit by its heavy exposure to banks and oil companies, which have fared badly this year: “It was also hit by Brexit and perceptions that the pandemic has not been handled that well.” The UK All Companies sector fell 7.9 per cent, with the UK Equity Income sector down 11.9 per cent.

Adrian Lowcock, head of personal investing at investment platform Willis Owen, said the UK could make up lost ground as vaccine programmes roll out ahead of other countries and Brexit clarity arrives: “Once deal or No-deal is official, companies and investors can make concrete plans and foreign investors may return.”

Willis said Merian UK Smaller Companies may be a good way to play the UK recovery, while Somerset Global Emerging Markets could generate rewards further afield.

FUND PICKS

Darius Mcdermott, Chelsea Financial Services managing director, said shares should also outperform in 2021: “We have more than one vaccine in the offing, Brexit will be completed one way or another, and the new US President is likely to be less unsettling.”

The world has “mountains of debt and a global recession” but Mcdermott added: “Governments and central banks will do all they can to support recovery.”

He favours the UK and Asia, tipping AXA Framlington UK Mid Cap and Fidelity Asia Pacific Opportunities.

Mcdermott’s other fund picks include BMO Global Smaller Companies, Blackrock Corporate Bond and Schroder Global Recovery.

‘Once deal or No-deal is made official, companies and investors can make plans’

CASH OUT

Government and corporate bonds performed relatively well as a safe haven, rising 4.4 per cent and 3 per cent so far, despite slipping in the second half of the year.

Many savers rely on property funds for income but these have done badly, amid fears that office blocks and retail outlets will become redundant as more people work from home.

Funds by Aegon, Aviva, BMO, Janus Henderson, M&G, Threadneedle and others have all suspended investor withdrawals this year.

The outlook for cash remains bleak, with the Bank of England holding interest rates at 0.1 per cent once again last week.

The Bank of England is even considering negative interest rates.

EQI director Richard Pearson said even if it does not take that dramatic step next year “savings rates are not going to bounce back any time soon”.