Market recovers on vaccine hopes. European equities rally strongly

After a bruising correction in September and October, the global stock market recovered strongly as more details on the vaccines gave much hope that the end of the current pandemic is near. Stocks that are the most badly affected during the pandemic such as energy, small caps and travel saw strong rally.

Even though the COVID-19 pandemic is getting worse in the United States, the stock market is still positive, thanks to the low interest rates, forcing investors to look to equity to get better returns as compared to the low interests you will get from bonds and cash equivalent. The effects of the low interest rates can be seen in the US property market as both buying volume and prices have been soaring in the past few months, even though employment is US is slow to recover as many companies are still in pain due to the pandemic lockdowns. The pandemic has worsen the rich poor gap in many countries as the rich with cash reserves are able to leverage and invest on the opportunity of the zero interest rates while the poor is unable to accumulate wealth due to job losses.

Meanwhile on the political front, president Trump is unwilling to concede that he has lost his election and is currently taking legal action in trying to change the votes in his favor. I do not foresee any significant impact on the stock market as a result of his actions. Instead, I am more concern about the second pandemic rescue package that has been put on hold due to the US presidential election and is now back on the table for negotiation as the cases have soared in US with parts of US going back into lock down again.

European Equities Rallied Strongly

This rally saw the lagging European equities staging a strong comeback after lagging behind in performance behind US and Asia throughout this pandemic. European equities have attractive valuation after being overlooked for the past few months though the overall performance throughout this pandemic period still lags behind their global counterparts. Asian and Emerging market equities performed well during this period and recovered past the point it started in 2020. As the COVID-19 situation is well controlled in major Asian economies, the appearance of a new wave around the globe did not affect the Asian stock market as compared to its western counterparts.

Meanwhile, the tech sector is still marching upwards steadily after the correction as a new wave of pandemic gave renewed strength to the tech sector. Other sectors that performed well during this period of time include energy and small companies as the vaccine brought about renewed hope that the economy will recover swiftly once the vaccine distribution starts rolling out and the planes can start to take to the skies again. On the other hand, gold performed badly as gold traders expect USD to strengthen in the near future on hopes of an economic recovery due to the vaccine rollout.

Portfolio Strategy

The portfolio has performed very well this month with cash delivering 6.34% and CPF-OA delivering 3.38%. The cash has outperformed OA by a good margin this time round is mainly thanks to the small company fund and the tech fund that outperformed while the breakout OA fund Franklin US Opportunities fund saw its return underperformed as investors started to rotate out of bigger US tech companies, which the fund has a bigger exposure in, in favor of smaller and non-US tech companies, which Blackrock World Technology has a bigger exposure in. 

Having said that, I believe that a minor correction is in works with the stock market over exuberant with the success of vaccine development and investors will start to take profit once the exuberant dies down a bit. However, the recovery story is still intact and we should not let minor ripples such as these derail us from the overall big picture. We will continue to maintain our current portfolio with a more aggressive slant towards equities to ride on the pandemic recovery story.