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Commentary on financial market developments – December 2020


  • US: giant fiscal stimulus
  • EU: last minute Brexit


Stock prices also rose in December, despite posting extreme gains in November. Thus, there was no price correction. The main causes of optimism were the first vaccination against the COVID-19 virus, the approval of a giant fiscal stimulus in the United States and the last-minute negotiated agreement on the form of Brexit between the European Union and the outgoing United Kingdom. Commodities also did well, with oil and gold posting decent gains.

Vaccinating the population is one of the main tasks of governments in developed countries around the world. The first people were vaccinated at the end of last year, but more and more are expected to be vaccinated over time. There are two main problems with this, which so far are the lack of vaccines and the unpreparedness of the administrative apparatus for such a major action, which needs to be carried out as quickly as possible. Therefore, it is necessary to take into account that a third wave of this epidemic is likely to sweep through the world in the meantime. Many economies are still partially paralysed, and this is reflected in the profitability of companies, which has fallen sharply over the course of this year. This is now not being matched by share valuations, which have had another successful year despite the pandemic and the short-term downturn. It seems that share prices are now driven not by corporate performance, but mainly by the monetary stimulus of central banks, which have injected three times more money into the world economy this year than in 2008 during the financial crisis!

And it’s not just monetary stimulus that is driving stock prices higher, governments are not lagging behind central banks, they are going into debt and trying to stimulate a moribund economy with fiscal stimulus. On a globally unimportant scale, this can be seen in the Czech government, which is cutting taxes and significantly increasing spending. But far more crucial to the global economy is the US government’s stimulus. At the end of the year, the US Congress approved an anti-crisis package worth USD 900 billion!

A last-minute deal was also struck between the European Union and the outgoing UK. It was not clear until the last minute whether an agreement would be reached, but both sides eventually reached a compromise. However, it is not clear whether the agreement is really of good quality, as there are voices that some points are still unresolved and may very soon become the subject of disputes.

Overall, this year has been a very successful one for the capital markets. Despite the global crisis in the form of the COVID-19 pandemic, both equity and bond markets have reached new highs. However, this poses risks for 2021. On the one hand, we have expensive securities, massive monetary and fiscal stimulus, on the other hand, corporate profitability is falling, central bank balance sheets are ballooning and countries are becoming more and more indebted. At the same time, tensions in society seem to be rising, and this is reflected in the often very heated political clashes. Therefore, our outlook for next year is not very optimistic. We want to emphasise the diversification rule all the more and guide investors to spread their investments across different asset classes and not to speculate in order to make a quick profit.

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