Catella : Market commentary for full year 2020

2020 goes to history as the year when the Covid-19 pandemic changed our lives, as well as enormous effects on the economic development. During the start of the year we had knowledge of the disease and could see from distance how the Chinese authorities tried to handle the spread. It however took until end of February before the market started to understand the gravity of the situation.

Covid-19 was observed in many places in the world and many people fell ill. In order to slow the spread of the virus many countries imposed travel restrictions, ban on public gatherings and in some cases curfews. The result was a sharp economic slowdown which led to increased risk aversion, falling equity markets, collapse in the price of oil and stress in the credit markets. The Stockholm Stock Exchange fell by over 30 percent during one month while corporate bonds of low credit quality fell by 10 percent.

After the sharp fall in the market, the situation stabilised. The main reason for this were the massive fiscal and monetary stimulus packages that were introduced to counter the weaker economic development. The recovery in the market has continued during the summer and autumn and has been stronger than most could have anticipated. This despite the fact that we have experienced a second wave of the disease.

On a company level, the pandemic has had a negative impact for most companies regarding profitability and cashflow. The majority of the worst affected we find within sectors such as air travel, transport, hotels and restaurants as well as retail. However, there are several sectors and companies that have benefited, for example the IT sector. In the US, a small number of tech companies such as Amazon, Facebook and Netflix, have contributed the majority of the market's rise during the last years. This trend was reinforced during 2020 as the need for the companies' digital solutions increased. During the month of November that will go to history as one of the strongest, it was however value shares that had the strongest performance. The main explanation for the development was a number of positive news regarding Covid-19 vaccines, as well as Joe Biden defeating Donald Trump in the US elections.

Sustainability is one of our time's strongest trends. Consumers, companies and countries focus on decreasing dependency on fossil fuels and plastics, food production and how to use earth's resources in a more responsible manner. The focus on sustainability is hardly new but has been reinforced during the year. This is something we expect to continue as more capital is being directed to sustainable investments.

With several world equity markets at record highs and a historically high valuation we can conclude that the improvement in the economy we see during next year is partially already in today's share prices. In relation to the outlook for 2021 the expectations are optimistic even though 2020 ends on a note with increased spread of the virus globally and the implementation of new restrictions. The key to the development for next year and a return to normality requires the vaccines to be successful.

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