Market overview

CIO VIEWS - A Tale Of Two Economies


“It was the best of times, it was the worst of times.” These opening words of Charles Dickens’ ‘A Tale of Two Cities’ come to my mind as we survey the global economy and financial markets at the beginning of 2021. This quote resonates with the unusual dilemma investors are facing of having to protect against two exactly opposing sets of risks.

On the one hand, we face the risk that markets have overestimated the strength of the post-coronavirus economic rebound. The early weeks of the year have seen rising international tensions as countries jostle over access to vaccines and increasing transmission risks of coronavirus variants that could derail or postpone the exit path from the crisis. Clearly, there’s a risk that efforts to contain the pandemic could disrupt activity for much longer.

On the other, we could be facing the possibility of a resurgence in inflation as a result of the massive fiscal spending pumped into the economy and the heavy central bank interventions we’ve seen since March last year: for example, the US Federal Reserve increased its asset holdings by a massive 76 percent in 2020 alone, accelerating the ...