Market Review

Q4 2020

Economy Overview

Global Economy:

  • The COVID-19 pandemic is expected to result in a 5.2 percent contraction in global GDP in 2020—the deepest global recession in eight decades, despite global stimulus support.
  • The unemployment rate fell from 6.9% in October to 6.7% in November. While the number of people reporting that they were unemployed (actively seeking but not finding work) fell sharply, the number of people reporting that they were unemployed for more than six months increased sharply once again. This suggests that many businesses are either shutting down or permanently downsizing.
  • Per capita incomes in the vast majority of emerging market and developing economies (EMDEs) are expected to shrink this year, tipping many millions back into poverty. Due to the economic repercussions of COVID-19.

Please have a look into our complete Quarterly investment letter here.


US Economy:

  • After falling sharply during the first half of 2020, consumer inflation bounced back in Q3. Due to QE infinity as well as the stimulus injections to float the economy Expected 30-year annualized CPI is less than 2%, a stark contrast from a decade ago when the market expected monetary accommodation to eventually lead to higher inflation.
  • In November, there were 245,000 new jobs created, a sharp decline from the 610,000 created in October and the 711,000 created in September. This was the smallest job gain since the big decline in employment in April. In November, government employment declined by 99,000, mostly due to the dismissal of temporary census workers.
  • The labor force contracted by 400,000 people in November, leading to a decline in the rate of participation. In addition, participation fell sharply for those with a high-school education while participation increased for those with a university education. The result was that the unemployment rate fell from 6.9% in October to 6.7% in November.

China Economy:

  • For this year despite the pandemic outbreak, China was the first country to recover as well as being the only country with positive GDP growth for 2020. As seen on the graph it is anticipated for China to have further growth in 2021.
  • China continues to outperform the world’s major economies, this time with extraordinary growth of exports. Specifically, Chinese exports (evaluated in US dollars) increased 21.1% in November versus a year earlier, the fastest growth in nearly three years. This was up from 14.1% growth in October.
  • Growth is anticipated to pick up to 8.4% in 2021, as the global economy is set to recover from the pandemic.
  • Retail sales increased 4.3% in October versus a year earlier, the fastest rate of growth since December of last year. Several categories grew at a breakneck speed, reflecting a significant rebound in consumer demand. These included automobiles (up 12.0%), garments (up 12.2%), personal care products (up 11.7%), cosmetics (up 18.3%), jewelry (up 16.7%), and telecoms (up 8.1%). Sales of oil and oil-based products were down sharply. The surge in cosmetics, jewelry, and garments suggests that domestic consumption is healthy and picking up the slack in international trade growth.
  • Imports rose a more modest 4.5% in November versus a year earlier. The result was that China’s trade surplus soared to a record level. All this has happened despite a sharp rise in the value of the renminbi in the past year. However, currency movements tend to influence trade flows with a lag. Thus, it could be that the negative impact on exports from a rising renminbi will not be felt until 2021.

Economy Overview

Global Economy

The tech-heavy NASDAQ composite index enjoyed a dizzying run of roughly 20% through early September, but bled the gains during the month, ending the quarter up 11.2%. The largeand mid-cap Russell 1000 index and the small-cap Russell 2000 index both enjoyed smaller but robust runs, jumping roughly 16% and 11% respectively through early September, before settling to gains of 9.5% and 4.9% at quarter’s end. For the year through September 30th, the Russell 1000 index was up 6.4% and the Russell 2000 index was down 8.7%.

For Hong Kong and Mainland stock markets, although the Sino-US tensions and the unpredictability of the pandemic remain a major risk, the positive fact is that the Mainland economic growth will assumingly improve further in 2H2020, and this should support the equities. Going forward the major catalysts would be vaccines development in China or potential improvements in Sino-US relationship. Consumer sector will remain the primary focus of the stock market during the quarter. In addition to online shopping platform which has been welcome much by investors so far this year, we expect beverages manufacturers, restaurants, athletic goods and auto stocks are among those benefiting from the domestic economic recovery and the internal circulation theme. Leading brands associated with high quality products and higher margin business models will benefit from consumer demand for consumption upgrade and improving awareness of health conscious.

Fixed Income

On bond market, 10-yr US Treasury had rebounded from 0.69% as at 30 Sep 2020 to 0.95% as at 31 Dec 2020. It was mainly due to the optimism of the financial markets about the Covid-19 vaccination. There were substantial inflows of funds into bond markets after the fiscal stimulus from US Government and the abundant liquidity provided by FED. Credit spreads of investment grade bonds tightened more than 25 bps in the fourth quarter of 2020. The high yield sector followed a similar path in credit spreads throughout the quarter.

Economic Outlook


Business Cycle Framework

Source: Fidelity

Global Growth Outlook and Risks

Global stocks and other riskier asset classes continued to rally during the fourth quarter.

  • U.S. stocks regained their prior highs — rebounding from the contraction in March.
  • Sustained progress in economic reopening and hopes of a vaccine underpinned the financial-market rally.
  • After a sharp and short-lived technical recession, most major economies are now inearly-cycle recovery.
  • China remains ahead of the rest of the world, in part due toof their exceptional control over the pandemic.

According to the IMF, Global growth is projected at 5.2 percent in 2021,reflecting a more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing measures. Following the GDP contraction in 2020 and anticipated recovery in 2021, the level of global GDP in 2021 is anticipated to be a modest 0.6 percent above that of 2019 (pre-COVID period). The growth projections imply wide negative output gaps and elevated unemployment rates this year and in 2021 across both advanced and emerging market economies. The emergence of a new variant virus poses additional headwinds to the global economy.


We remain cautiously bullish about the economic outlook. The US Fed continues to maintain an accommodative policy stance for the US economy. The new Biden Adminstration brings relief and opportunities as compared to the previous administration but also potential risks with regards to existing and new policies that they may roll out.

While the economy rebounded from the contraction in the 1H2020, the following factors are likely to determine how the recovery develops in 2021 such as; i) the scale of the ongoing COVID-19 resurgence along with a variant of the virus and any resulting containment measures, ii) the resulting effects on the labor markets and household consumption and income, iii) the size and timing of additional fiscal and monetary stimuli, and iv) the progress on the COVID-19 vaccine front.

The trade war between the U.S. and China is likely to be more constructive under the Biden Administration and we do not foresee a return to pre-Trump era relations with China.


The Chinese economy has returned to almost pre-pandemic output levels—a significant achievement given the depth of the first quarter downturn. Consumption has caught up to production and is likely to impact the outlook for government policy.

The government and People’s Bank of China (PboC) have been discussing when to start reducing the amount of stimulus. The most likely outcome is a continuation of the hand-over from monetary policy to fiscal stimulus. Fiscal policy should remain supportive through 2021. More stimulus may be announced at the National People’s Congress meeting (likely in March 2021) as the government continues to support consumption.

Moreover, if a vaccine is widely introduced in the coming year, it could lead to a deceleration or decline in demand for pandemic related goods. Thus, the surge in China’s exports might subside. Plus, a post-pandemic world will likely entail a shift in consumer spending away from goods and more toward the products that consumers have avoided over the past year. Tourism, for example, will likely surge. A return to global travel will likely lead to a big increase in Chinese tourism, thus reducing the country’s trade surplus.

Asset Class Overview


Fixed Income

This material is provided for informational purposes only. It is not a recommendation or solicitation of any investment or investment strategy. There is no guarantee that any investment or strategy will achieve its objectives. Unless otherwise stated, all information contained in this document is from Raffles Assets Management (HK) Ltd. and/or Raffles Family Office Pte Ltd (Singapore) and is as of 05 January 2020. The views expressed regarding market and economic trends are those of the authors and are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. By acceptance of these materials, you agree that you shall use the information solely to evaluate your investment in this Raffles Assets Management (HK) Ltd and/or Raffles Family Office Pte Ltd (Singapore) sponsored investment opportunity and you shall keep the information confidential.

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