Are we there yet? Those familiar with transporting children on long journeys will instantly recognise the question. But from an economic perspective, how close to ‘there’ are we in terms of returning to normality after Covid-19 laid waste? Sometimes, it seems very close indeed but then at others …. it seems to slip further away as those currently in or planning to visit Portugal would no doubt agree.
The Organisation for Economic Cooperation and Development (OECD) is forecasting the UK’s GDP will grow 7.2% in 2021, the fastest among G7 nations and marginally ahead of the US at 6.9%. We don’t take such prognostication too seriously; the forecasts of such organisations are often laughably inaccurate but they do illustrate that after such unprecedented dislocation, a degree of economic improvement is a given as economies open up. The challenge now, though, is whether Covid’s variants are more problematic than Covid itself? Investment is our bailiwick, not epidemiology, yet it was surely obvious that ‘original’ Covid would mutate, as all viruses do? Inoculation helps but ultimately, normality, to our eyes, looks linked to herd immunity. However, from a psychological perspective, that’s a step few politicians look willing to consider and when globally, they can print money and borrow for almost nothing, there’s little incentive for them to change their minds.
The best investment returns are likely to be secured by owning great businesses bought at sensible prices. This simple (but not necessarily easy) strategy has served us well and we believe, will continue to do so. Inflationary fears have prompted many investors to rotate into cyclical business where valuations are much more modest. It’s a trend we won’t be following.