‘It was the best of times, it was the worst of times’
The opening phrase of Dickens’ Tale of Two Cities seems particularly apt, as we look back on the ups and downs of 2020 and the disconnect between the real economy and financial markets. Many of us will have mixed feelings about the year we have lived through. There is little doubt, that in addition to the more than a million lives lost, Covid-19 has been the great ‘unequaliser’ of wealth, income and opportunity, in particular for the already disadvantaged and the young. Around the world policy-makers are bracing themselves for the inevitable societal and economic scarring and aftershocks and are undoubtedly wishing that we were in a different place.
On the other hand, as economies begin the long, difficult ascent back to health, there are reasons to be hopeful; vaccines are proving to be effective, testing has been ramped up, treatments are improving.
There has also been incredible medical and technological innovation born out of cross-disciplinary collaboration on a global scale, which will have multi-generational effects. This is the narrative which has driven many equity market indices to reach new highs, buoyed by the prospect of continuing central bank support.
One of the other silver linings is that global awareness and consensus on the need to tackle the environmental crisis has increased this year, alongside a greater focus on social and governance goals. The direction of travel is now overwhelmingly in favour of sustainable investments with over $80 trillion of assets committed to following the Principles of Responsible Investment and this has also spurred innovation. We have seen the launch of many new investment strategies in this space with a focus on maximising natural and human as well as financial capital. Last year the European Commission launched the European Green Deal, a $7 trillion plan to renovate buildings and invest in renewable energy, clean energy, and green transportation. This will be the largest economic stimulus the continent has seen since the Marshall Plan. Next year, President elect Biden will be in office and there is strong potential for a US Green New Deal. Furthermore, almost on a monthly basis a new country is signing up to a net zero carbon emissions target and large institutional investors such as the Norwegian and Japan sovereign wealth fund are leading the way in how to integrate sustainable investment across all asset classes.
‘There’s husbandry in heaven; Their candles are all out’
The quote above is from Macbeth. Most of you will be familiar with the Shakespearean tragedy about an ambitious nobleman of Scotland whose desire to become The King of Scotland results in murder, villainy and downfall. In modern English, this quote can be interpreted as the angels are economising by not illuminating and wasting the brightness of the stars. This feels like a good mantra for a society innovating to preserve and heal global resources for future generations.
Even the more niche area of impact investing is having its own renaissance with the launch of ETF products which track Multi-Lateral Development Bank Bonds and EU Sure Bonds (Support to mitigate Unemployment Risks in an Emergency), which are one of the first investments to tie COVID-19 relief to economic development.
As we look forward, many market commentators are remarkably optimistic, while others are more cautious reminding us of the inevitable scarring in some areas and the urgent need for change and alignment to address the economic dispersion and social inequalities aggravated by Covid-19. To conclude with the rest of the line from the Tale of Two Cities, ’it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity’ As ever only time will tell, but we look ahead with a degree of optimism and hope that wisdom and belief will override foolishness and incredulity.