In the lead up to 2020, the media was full of throwback references to the “roaring” 1920s.  This was an era of glamorous flamboyance and wild entertainment remembered for its flapper dresses, jazz and the Charleston.  How wrong could those references have been?

From COVID19 to COVID2021?

We are now in the closing stages of 2020 and “COVID19” shows no signs of disappearing.  It, therefore, seems reasonable to assume that the Coronavirus will be present at least during the early months of 2021.  It also seems reasonable to assume that governments around the world will need to balance their eagerness to reopen their economies with caution about being too quick to assume that the virus has disappeared.

A U.S. election, Brexit and global uncertainty

Even without the Coronavirus, 2021 looks set to be an interesting year.  It will definitely see either a U.S. president with a renewed mandate or a new U.S. president.  It will also see Brexit (unless there is a very last-minute change of plan).  It may also see a restructuring of the global economy, potentially with major social and political consequences.

COVID19 highlighted the dangers of relying on a single country to be the world’s manufacturing hub.  As a corollary to this, it also highlighted the dangers of a blockage to the complex global supply network. 

Sea freight moves slowly.  It, therefore, needs to be scheduled well in advance.  If that schedule is disrupted then you end up with vessels in places where they are not needed and no vessels in places where they are needed.  This is exactly what happened.  Airfreight is dependent on passenger flights so when they stop capacity is vastly reduced.

Road and rail freight can, in principle, adapt quickly, especially road.  The problem, however, is that the need for COVID19 testing (and issues with quarantining/self-isolation) brought it, literally, to a halt.

The way forward

Set against this background, it’s hardly surprising that the UK’s official economic figures make for miserable reading.  Many businesses are still closed.  Some are only just managing to get by with government support, which is due to be withdrawn soon.  Some, however, are adapting and a few are even thriving.

It’s important to recognise this fact since it demonstrates that COVID19 does not have to mean economic ruin.  It does, however, mean that businesses which want to survive over the long term may have to rethink how they work.  The simple and harsh truth of the matter is that a new pandemic could strike at any time and businesses need to be prepared for that possibility.

The implications for investors

Over the immediate future, investors are going to need to strike a balance between “keeping calm and carrying on” and making sure that their portfolio is appropriately adjusted to reflect changing circumstances.  These circumstances may be personal or economic.

This could be very challenging for some people, especially if the stock market is volatile.  It might therefore be wise to make a point of scheduling regular meetings with a professional financial advisor.

In particular, investors may wish to think very carefully about their exposure to the stock market.  Firstly, they will need to decide how much, if any, of their disposable capital they want to leave invested.  Secondly, if they do decide to remain in the stock market, they will need to think about what shares are best suited to their needs and wants.

Investors looking for income may need to be particularly careful.  Dividends always depend on company profits and hence are never guaranteed.  At present, however, some companies may also have to consider whether paying a dividend could cause problems with regulators and/or a negative (social) media reaction.