We believe that the global economy is on its recovery path with the backdrop of still easy monetary and fiscal policies at play. The fundamentals are still good as compared to the 2013 period, when the US Federal Reserve flagged their intention to taper off quantitative easing. The rebound in global activity is now spilling over more convincingly into rising export demand, especially for Asian products. The Bank of Canada, followed by the Bank of England were among the first central banks to taper bond purchases, and others are expected to follow. The US Federal Reserve has also indicated that it is optimistic about the US growth and employment conditions. These comments prompted financial markets to rethink their expectations of monetary policy and liquidity resulting in several speed bumps in the financial market. However, we believe they will be reassuring in communicating that interest rates will stay near zero for a considerable period. History tells us that as we pass the point of peak growth and stimulus, the days of easy gains would be behind us.
While new COVID-19 variants are emerging, the pandemic has largely come under control or has started to improve substantially. The governments have generally learnt how to deal with outbreaks of infections through more calibrated lockdowns, accelerated vaccination programs and better medical treatments introduced to reduce the health risks posed by the virus.
There was a slew of regulatory rules in China tightening up on antitrust/anti-monopoly and fintech-related matters after the 100th Communist Party anniversary. Beijing’s move to crack down on Chinese technology companies, which it perceives as becoming too monopolistic and unsustainable in their businesses, is a multi-year policy response as the government aims to bring technology firms into a normalised regulatory framework. We believe its disciplinary action is necessary for a maturing economy and would bring the companies’ business to a more sustainable path.
The Biden administration has opted to stick to the tough approach taken by Trump on China. This suggests that political and regulatory risks could become a bigger part of future investment decision-making. We remain constructive on Chinese stocks. Without concrete steps by the G7 to implement similar tough measures against China, global investors still appear keen to invest in Chinese and Hong Kong companies.
Geopolitical risk will be a factor we will need to consider in the long term. So far, the risk is still minor, but it is fluid and we have to continue to monitor this issue closely from time to time to assess its impact on the global economy and markets. We can only be certain that protectionism and de-globalisation are here to stay, and we should expect markets to stay on its toes while marching upwards in 2021. The US-China upheavals would herald a degree of economic bifurcation as these countries impose financial and technological restrictions on one another. On the other hand, we are also entering a period of wide-ranging technological changes, many of these will be exciting and contribute to a healthier, greener and more dynamic world.