We start the new year with the global economy in its most challenging state since 2009. The COVID pandemic is still presenting serious challenges to healthcare systems around the world, particularly in Europe and the Americas. This in turn continues to prompt action by governments to restrict activity which has severe short-term economic costs. Despite the accelerating roll-out of COVID vaccines, the world is now in an economic grey area, with many months of disruption ahead before we reach the eventual destination of a vaccinated post-COVID world and subsequent return to normal.
Investors must be prepared for more bouts of volatility along the way. The path to economic recovery and our post-COVID future will not be a straight-line, economic recoveries never are that easy. Remember the 2008-2009 financial crisis triggered the 2010-2011 Eurozone crisis. The seeds of the next crisis may have already been sown by the healthcare and economic catastrophe of 2020, and like investors in January 2009, we just don’t know what that next crisis looks like yet.
Cautious optimism is the recipe for successful investing in 2021 (as it was in 2009!). Investors must remain vigilant of the potential medium-term impacts of the COVID crisis, as well as the immediate economic costs. But there will be brighter times ahead. The roll-out of vaccines targeted on the most vulnerable population groups will start to have a meaningful impact on COVID hospitalisations within months, and the prospect of permanently re-opening major economies by the summer is now a real prospect.
Successful investing is about taking a long-term view and this gives us the luxury of being able to look through the pandemic. The post-pandemic future will hold many challenges (hint: the future always does). But at Dominion we also see an incredibly exciting future with phenomenal long-term investment opportunities ahead. The future is bright and exciting, but it won’t be plain sailing!
We firmly believe that in an uncertain world, a focus on high-quality, high-growth investments driven by structural change in the global economy is the safest long-term exposure for investors. Rising volatility and uncertainty reinforces this strategy (2020 proved this), since during times of greater economic stress, reliable growth becomes even more scarce, bidding up valuations in those businesses able to continue growing.
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