January blues? Not for UK investors
While many of us are experiencing a touch of the January blues, we believe UK investors are in a positive frame of mind. Here’s why.
As the UK enters its third lockdown, you could be forgiven for sensing a real air of frustration at the prospect of yet another round of restrictive measures.
Yet for those invested in the UK stock market, optimism, not frustration seems to be the watchword. Since two out of the three likely reasons for the more positive tone were announced when most of us were winding down for the Christmas break, here’s a quick reminder of events:
The Brexit trade deal
After four and a half years of negotiations, the UK’s historic trade deal with the EU was finally struck on Christmas Eve. While the deal guarantees tax-free trade in goods, it says little about how financial services will look in a post-Brexit world. Indeed, we may not know the full extent of the agreement until years after the ink has dried.
But, for now, there is a distinct sense of relief among investors that the dreaded ‘no-deal’ scenario has been avoided, while some political harmony has been restored.
Help from the US central bank
Another positive influence on the UK stock market, also agreed before Christmas, came from the US in the form of an agreement to provide an eye-watering US$900 billion coronavirus relief package for families and businesses facing economic difficulties.
This is important because recent statistics suggest that the US consumer was beginning to face renewed hardship. With soon-to-be President Joe Biden at the helm, it also looks like more government help could be on the way.
It’s not just the US central bank that is providing help to those struggling in the current crisis. Central banks around the world, including the Bank of England, are injecting historically large amounts of cash into stricken economies, with a view to trying to increase global growth. Companies that may typically benefit from this type of environment make up a significant proportion of the UK stock market.
Approval of the Oxford-AstraZeneca* vaccine
And finally, to the Oxford-AstraZeneca vaccine. After months of speculation, the UK vaccine was given approval on 30 December.
So far, the UK has vaccinated just 1.3m people but the rollout of the vaccine and opening of national vaccination centres in the coming days are expected to boost the daily inoculation rate quite dramatically. While UK investors have known about this vaccine development for some time, news that the vaccine is resistant to the latest, and more virulent strain, has been welcomed.
Let’s not forget that compared to other stock markets, the UK performed poorly in 2020, ending the year down. By contrast, the US stock market notched up double-digit gains, in large part due to the presence of US technology stocks.
While some developments may dent investor optimism in the weeks and months to come, for now we believe UK investors appear happy looking through the current lockdown and economic pain thanks to the generosity of central banks and the rollout of inoculation programmes across the globe.
Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.
*For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.