Alpha Portfolio Service Brochure
Some economists are predicting the world could enjoy a 21st Century version of the ‘Roaring Twenties’.
Perhaps more aptly this could be described as the Roaring 2020’s, as we emerge from the Covid-19 pandemic helped by vaccines and economic stimulus. While it might not feel like it currently, we could be about to experience an economic party not seen for 100 years and a feel-good boom.
The Bank of England recently highlighted the household savings ratio as providing potential upside to its UK economic growth forecast. This is the enforced saving on many Britons who due to lockdown have been unable or not willing to spend money and have instead been saving or paying down credit card debt.
The UK hospitality sector and particularly pub owners are in desperate need of a party. Having been particularly hard hit by Covid-19 or more precisely lockdown measures. However, recent corporate activity in the UK pub sector suggests that the survivors are hoping we all party like we’ve never done before when we are allowed to drink and eat-out once again. Quoted pub group Marston’s rejected an offer from Platinum Equity Advisors which has decided not to submit a revised proposal. Reflecting on this, former Greene King boss Rooney Anand’s Redcat Pub Company, has recently raised £200m from a US asset manager to target quality retail and tenanted pubs in the South and East of England.
While many UK stock market constituents are now having to contend with stronger Sterling, the UK’s cheap valuation compared to global peers is driving an increasing amount of takeover activity from overseas private equity (PE) investors. Some PE bids can be opportunistic, but where there is smoke there is fire. We have already seen some initial bid approaches that have developed into a contested bid situation to the benefit of shareholders.
The government will want to ensure we don’t drop our guard against Covid-19 too soon due to the new variants but we have turned a corner. We are all looking forward to meeting friends in a pub, visiting family for a garden BBQ or playing golf or tennis or going to the gym.
Let’s hope the British weather can give all of us, but particularly the hospitality and holiday sectors, a much-needed boost this Summer – temperatures in the roaring twenties would be nice!
However, before we get too carried away, Chancellor Rishi Sunak is rumoured to be planning a hangover cure in the form of a wealth tax. The UK is facing its biggest-ever peacetime budget deficit due the Covid-19 hit to UK finances.
What have we been watching?
Global equity markets extended their upward march despite a steepening of the bond yield curve. Janet Yellen US Secretary of the Treasury suggested that if President Joe Biden’s $1.9trillion stimulus package is approved that the US could see full employment by 2022. That could be inflationary and is one of the reasons bond yields have been rising. US stimulus hopes have driven the US S&P and NASDAQ technology indices to fresh highs and also been driving up commodity prices such as copper and oil. Elsewhere, Sterling touched $1.39 as the UK hit its initial 15million vaccination target raising hopes for an easing of lockdown.
In addition, to the potential US stimulus, China’s currency has recently strengthened, increasing the costs of goods to western companies. Raw material prices are rising, transport costs are higher and the situation has been exacerbated by shipping container shortages. Western manufacturers have enjoyed the benefit of low cost Asian and particularly Chinese goods and components along with reliable logistics. Could this be changing? The recent shortage of semi-conductor chips is a good example. In the UK, Electrocomponents has recently flagged heightened freight, labour and logistical costs.
Many UK retailers are also experiencing higher costs following Brexit. The Chairman of JD Sports talked to the BBC and said that the impact of the Brexit trade deal on its business had been a lot more than they expected. JD Sports is seeing considerable extra costs and is considering opening a large distribution warehouse in Europe and employing 1,000 workers with numbers of them replacing jobs in its Rochdale facility.
All travellers entering the UK will be required to take two Covid-19 tests while quarantining in an attempt to prevent variants entering the country. Meanwhile, a study of the Pfizer/BioNTech vaccine suggested it is only slightly less effective against the South African variant of Covid-19. The total number of vaccinations in the UK climbed to 15m. Surge testing got underway in parts of Bristol and Manchester for a possible mutation of the Kent variant. The new hotel quarantine scheme comes into effect today although may be another example of the stable door with reports of upwards of 200,000 people having flown back from the 35 high risk, variant countries ahead of the deadline.
The UK experienced its sharpest recession since the 1709 Great Frost which seems pertinent given the temperatures last week. The economy contracted by 9.9% but the fourth quarter was cushioned by some stock building ahead of Brexit. Any improvement at the end of 2020 will have been snuffed out in the first quarter of 2021 by lockdown 3.0. However, with the 15million vaccine target achieved there is raining political pressure for lockdown measures to be eased.
In Europe, Mario Draghi, a former head of the European Central Bank was sworn in as head of Italy’s new unity government and should hopefully end the recent political crisis.
In the US, the Chair of the Federal Reserve Jerome Powell refrained from making specific comments on fiscal policy in his latest speech but re-affirmed that the scaling back of monetary stimulus will not even be considered until core inflation is at least 2%.
The Japanese economy shrank by 4.8% in 2020 but grew by 12.7% in the fourth quarter which was better than expected.
China’s factory prices rose for the first time in a year in January, rising by 0.3%. The recovery in manufacturing is driving raw material prices higher as highlighted above.
Brent oil edged up to another fresh 12-month high of $63 on US stimulus hopes and Chinese demand.
Finally, ‘put your money where your mouth is’. Well, Elon Musk who has been talking up a number of crypto-currencies has done just that through his company, Tesla, which has purchased $1.5bn of bitcoin. ‘We expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws, and initially on a limited basis, which we may or may not liquidate upon receipt’. This should give central banks and financial regulators something to ponder.
Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email firstname.lastname@example.org. Alternatively, you can call us on 0117 203 3460.
This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.
You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.
Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2020 Alpha Portfolio Management, All rights reserved
© Alpha Portfolio Management 2021. All Rights Reserved
Site by Lookhappy