2020 was the craziest year since 2008. Extreme weather situations like hurricanes or the bushfires in Australia, an escalation of the US-Iran conflict which by a whisker led to a new gulf war, the US presidential elections, and Brexit made the headlines. The SARS-CoV-2 pandemic was, however, the dominating theme. First the virus had been clearly underestimated but then it disabled normal social interactions and through lockdowns led to a brutal contraction of the economies on a global scale. 95% of the countries fell into a deep recession. It was the worst slump in 50 years. On average the economies shrank by 4.5% with a few negative outliers like Spain, Italy, UK, France, or India with a contraction in the range of 10% or more. Japan, the US, Switzerland, and Germany will close the books with a negative figure in the range of -4% to -6%. Ironically the country wherefrom the virus spread all over the world is the only one that will report a slight growth for 2020. Only the very massive fiscal support measures taken by the governments and an ultra-expansive monetary policy prevented the world economy from falling into a veritable depression.
2020 was a year of extremes in the financial markets as well. Towards the end of February, when it became clear that Covid-19 is a pandemic which will paralyze all economic activities, the stock markets crashed by 35% (MSCI World) within a few days. But starting in mid-March they crept up again as they began to assume that the huge fiscal packages and the tremendous money injections by central banks might avoid the worst and that for 2021 a sharp recovery could be expected. Overall most stock markets ended the year out of the red and a few even recorded new historical highs. But the recovery was by no means as broad based as the sheer look at the indices would suggest. Especially in the US, tech stocks like Apple, Alphabet, and Amazon (the FANG stocks) rose strongly while many other sectors like e.g., airlines, tourism, and energy did not participate at all. The market was divided in a few winners and many losers. Actually, only about twenty stocks are responsible for the positive performance of the S&P 500 while many others still quote below the year end prices of 2019. The country-specific performances were very heterogeneous as well, which can e.g., be seen by the fact that the market cap of Apple alone is now as high as the total market cap of all German stocks. The bond markets, too, showed a very fragmented development. The yields of government bonds fell due to the economic contraction and the ample support by central banks to a new low until they began to rise again in August. Worries about the huge increase of debt through the astronomic fiscal aid packages and creeping inflation fears because of the monetary excesses were the main reasons for this interest rate reversal. Corporate bonds nearly collapsed in March as the yield spreads exploded. They, too, recovered again but very selectively.
On the currency side the USD trended lower. It almost lost 10% against the EUR, the currency of an economic area that is structurally weak and just lost its second-largest net payer. Once again, the Swiss Franc was the strongest currency, this time together with the Renminbi.
2020 proved to be a very challenging year for investors. Our portfolios performed solidly also due to the fact that we hold a large position in gold – one of the best performing assets in 2020.
We wish you a happy and prosperous New Year.
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