Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Confidence in the global economic recovery sustained a couple of knocks this week, as new lockdowns and vaccine rollout complexities across the European Union stole some headlines. The oil price – a key proxy for economic expectations – slipped back to around US$61 per barrel at one point, some US$10 below its recent peak, US government bonds gained a little and world stock markets moved broadly sideways¹.

One year on from the UK’s first coronavirus lockdown, we have plenty to reflect upon. The short but sharp bear market of February and March last year and the subsequent market recovery – together resembling a “V” shape with the second leg of the V at a far less acute angle than the first – is easier to understand in retrospect than it was at the time.

The initial fall in markets in February felt a lot like previous short, sharp corrections to the bull market that had preceded it, so some investors may have felt inclined to add to their holdings. In fact, markets were, at that point, only about halfway on their journey to the bottom.

No matter though, little harm done. Timing the actual bottom of the fall in late March was – as usual – nigh on impossible and investors that added during the fall will most likely have seen their investments recover into profit since then. The principal danger of the fall was the risk it would convince investors to sell and not buy back in.

The way in which markets have recovered since last March has been impressive and, with the substantial benefit of hindsight, understandable. The bull market was not derailed by a fundamental shift in financial conditions – higher interest rates, a collapse in corporate earnings or sharp rise in stock market valuations – the effects of which might have taken several years to unwind – but by an unrelated, idiosyncratic event.

Second, the responses from governments and central banks to the economic stresses of the pandemic have been enormous and are likely, at some point, to spill out into excess demand. The IMF now estimates the world economy will grow at a fast rate of about 5.5% this year and by 4.2% in 2022².

Today, investors face an array of questions about what life will look like once the pandemic has passed and consumers and businesses become unconstrained by lockdowns. To what extent has the pandemic changed the way that we live or accelerated changes already underway? Will we dash back to our pre-pandemic routines as soon as we can? How will changes in the patterns of government spending affect the economic landscape? The answers to these questions will have profound implications for which kinds of companies we will all want to be invested in over the months and years ahead.

Soundings from the leisure industry suggest the demand for holidays both at home and abroad has already risen rapidly. The travel giant Tui reported this week that summer bookings have shot ahead since the UK government published its roadmap out of lockdown late last month³. This, perhaps, is one of the first sure signs of a strong desire to return to normal life.

It’s not yet clear, however, that consumers are ready to jettison all the trappings of lockdown. Video calls, on-demand entertainment, working from home – at least, for some of the time – DIY projects to improve living and home working environments and grocery deliveries may well be parts of lockdown life many people want to keep.

If this is true, then the future stock market winners may turn out to be a combination of the companies that helped see us through the crisis – including technology enablers – alongside traditional industries that tend to do well when businesses and consumers are spending more overall. In stock market parlance, that means opportunities for investors in both growth stocks and cyclical stocks over the months to come.

One theme that has a strong chance of flourishing post lockdown is sustainability. During the pandemic, the European Union, China and others tightened their greenhouse gas reduction targets and committed to spending more on green infrastructure. Joe Biden’s new administration is expected to lead America out of the current crisis in similar fashion, after bringing the country back into the Paris climate agreement in January.

With major infrastructure rollouts still to come, it seems likely we shall see substantial sums spent on technologies addressing climate change and a further fall in the relative cost of renewable energy. Recent studies suggest solar parks are already producing the cheapest electricity in history⁴.

The further transition to electric vehicles now looks unstoppable, even though great challenges remain in terms of charging and battery capacities that, in themselves, present great opportunities for battery specialists and metals miners.

Even where old technologies predominate – in the building of roads, bridges and housing – sustainability looks set to play a greater role in the decisions governments and infrastructure providers have to make.

Allied to that, the way in which companies are run has become an increasingly important consideration. That’s unlikely to change in an environment where the reputational risks arising from inappropriate environmental, social and governance (ESG) policies have never been greater, and where the ethical and business sustainability awareness of customers and investors has greatly increased.

Another theme is the shift in power and economic influence eastwards that was started well before the arrival of the pandemic. China and other countries around the Pacific Rim not only entered the pandemic crisis first, the signs are they handled it better too, suggesting they are now in prime position to benefit from the opportunities presented by a post-pandemic world. This week, China declared it may now be on course to exceed its economic growth target of “above 6%” in 2021⁵.

Whatever themes you decide to pursue in your investment portfolio this year, it’s worth remembering there are now just a handful of days to go until Easter and the end of the current tax year, so time is running down fast if you’re wishing to make full use of your ISA or SIPP (personal pension) allowances in 2020-21 and haven’t yet done so.

If you are uncertain about your immediate investing plans, remember you can open a stocks and shares ISA for this tax year and hold it in cash for the time being. However, miss the 5 April deadline, and this year’s ISA allowance is gone forever – it can’t be carried forward to future years.

Some of the investment themes described above are encompassed by Tom Stevenson’s five fund picks for 2021. Meanwhile, the three-year-old Fidelity Select 50 Balanced Fund offers a “one stop” diversified path into global markets via a broad selection of funds carefully chosen from Fidelity’s Select 50 list.

Source:

¹ Bloomberg and US Department of the Treasury, 26.03.21
² International Monetary Fund, 20.01.21
³ Tui Group, 25.03.21
⁴ www.carbonbrief.org, 13.10.20
⁵ Bloomberg, 22.03.21

Important information

Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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