Democrats Gains Power
The Democrats managed to wrestle 2 senate seats from the Republicans in an election run-offs at Georgia, flipping the senate in the favor of the Democrats, with the Democrats now controlling the Presidency, the Senate and the House of Representative. This means that the Democrats will be able to push through policies through quickly which is seen to be beneficial for the US economy. The Democrats are in favor of pushing $2000 directly to the man on the streets and expanding the healthcare system last set up by the Obama administration. These will be a boost on the stock market as the market is looking forward to more certainty after the chaotic response by the Trump administration. However, Democrats are in favor of raising corporate taxes and income tax for the high income earners and this will potentially dampen the performance of the stock market once the COVID-19 pandemic comes under control while trying to keep government spending down to restore the government balance sheet.
Donald Trump Impeached For The Second Time
A protest against election fraud outside of the US Capitol turned into a riot as protestors force their way into the US congress, trying to prevent the congress from certifying Joe Biden as the next President of the United States. The unprecedented invasion of the Capitol drew outrage and condemnation and tremendously weakened the political power of Donald Trump as he is seen to be the instigator for the riots. As a result, Twitter, Facebook, Instagram and Youtube shut down Donald Tump's social media account, severely curtailing his influence over his base. The Democrats initiated another impeachment on Donald Trump with a number of Republicans breaking ranks and supporting the impeachment. With only a week left to Trump's presidency, the impeachment probably will not be in time to be of any effect, but the real objective behind the impeachment is probably to curtail the power of Donald Trump, preventing him from running for the 2024 Presidential Election. Hence should the impeachment become successful, this will give more certainty in the future leadership of the US government. However, an impeachment requires 2/3 of the Senate voting for it and with many Republican fearing the offend the base of voters who gave Donald Trump 74 million votes in the 2020 election, the impeachment probably will not come to pass. However, this chaos will have severely weakened the political power of Donald Trump and there is a good chance that he will not unable to make a come back again. There are fears that another Trump family member may run for presidency or another like minded Republican candidate will take up Trump's mantle and continue his work of splitting the US population and their political views which may force US into further chaos, potentially sparking a start of a downfall of the US economy and its stock market.
COVID-19 Came Back With Vengeance
Ever since the discovery of a new mutated strain of the COVID-19 virus, many countries saw a resurgence of the virus with new records being set for both death and infection rates. Even countries like Japan, South Korea and Malaysia which has controlled the virus spread during the summer of 2020, saw a new wave of infection in recent weeks. UK and Malaysia went into a second lock down with other countries probably following suit if the new strain proves to be too difficult to manage with the current policies. The vaccine roll-out is starting but problems with vaccine distribution and convincing the population to take the vaccine shot proves to be a hurdle to achieving a reasonable vaccination for herd immunity within a short period of time. It is estimated that it may take till the end of 2021 before there are enough vaccines to go around for the richer countries and another few more years for world wide vaccinations to happen. There are also worries that COVID-19 may mutate again making the current vaccines ineffective and this may be a drag on the global economy again. Hence the stock market is expected to be rocky till the end of 2021 when evidence of the vaccine is effective in controlling the virus becomes more evident.
Portfolio Performance and Strategy Forward
The portfolio has outperformed beyond my expectation for 2020, even managing to beat MSCI World Index, which is a full equity index using a hybrid portfolio of equity and bonds. The cash portfolio returned 13.95% and and CPF-OA returned 25.71%. The strategy of going offensive with equity during the darkest hours of the pandemic in April and May have paid off handsomely as the stock market rallied strongly into the end of the year. Other than a less than ideal allocation into Energy, the rest of the portfolio that has been allocated into US, China, technology and US small companies has been pretty spot on delivering some of the best returns among the sector returns this year. The strategy of asking clients to tranche out any lump sum investments into tranches also paid off handsomely as the market gyrated up and down, allowing dollar cost averaging to work their magic in an extremely volatile market.
Going forward, I expect 2021 to be similar to 2020 with lots of market gyration but this time, with expectations that the biggest losers of the COVID-19 pandemic such as transport, retail and energy to start picking up steam. Technology to still maintain its strong performance, though not as strong as 2020. The rationale is that technology stock has became the new darling of the COVID-19 pandemic and should there be a lock down again, technology stocks are expected to do well. Should the economy starts to recover, technology stocks are expected to spearhead much of human development post COVID-19 with our behavior much more tied to tech companies more than ever before. As the market trend up further, I will also start to take profits from our equity position and build up buffers for future market corrections, which undoubtedly will happen as the market re-assess the value of each sector in the post COVID-19 world. Sector and country selection will be extremely important in 2021 as 2020 teach us an important lesson... A pandemic recession will produce outsized winners and outsized losers and picking the winners is essential to getting good returns for the duration of this pandemic.
In the meantime, I will like to wish every one a HAPPY NEW YEAR and a better future for 2021!
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