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Wealth Management, November 2020

Peter Ahluwalia, Chief Investment Officer
Swisspartners AG,  partners’ view, November 2020


This was the title of the 1990 American action movie starring Steven Seagal, in which the lead character’s wife is murdered and he is shot by corrupt police officers working for a corrupt politician. After spending seven years in a coma he wakes up, trains hard, and then proceeds to take revenge on the perpetrators.

It seems to me that the world itself has been in something of a coma for close to a year, but despite a multitude of worries it is recovering month by month. The V-shaped stock market recovery has been hard to kill off, as has the V-shaped economic recovery, which has caught – and continues to catch – most economic forecasters off guard.

Having had the privilege to travel to Iceland in summer several years ago, it is always interesting to observe different cultures and habits. After lengthy winters which feature very little daylight, Icelanders hardly seem to sleep at all during the long summer days, making up for lost time and doing all the things they weren’t able to before.

This comes down to human psychology and perhaps explains why we are seeing a spike in Covid-19 cases in Europe (almost certainly to be followed by the USA in due course). The fundamental problem is that the Novel Coronavirus is no longer novel! With younger people in the Western world no longer fearful of fatality, why should they hold back? This trend is unlikely to change unless hospitalisation and death rates among younger people increase substantially or governments impose and enforce penalties that are harsh enough to deter them.

While many people are currently fretting about second national lockdowns, I see them as a distinctly remote possibility. After all, the only thing worse than not having freedom is being given a taste of it and then having it taken away. Any democratic government that tries to force the issue is unlikely to remain in power for long.

Of course, the current environment has thrown up many conundrums:

  • Why have women leaders been more successful in supressing Covid-19?
  • Why have populist leaders been singularly unsuccessful in doing so?
  • Why has Asia been more successful than the Western world?
  • Will this accelerate what is already a highly advanced shift in economic power from west to east?
  • Is the current form of capitalism in the Western world the correct model, or is it building a time bomb in the shape of a K-shaped recovery?
  • Will the fear of further lockdowns actually boost consumption?
  • Why is the queue to vote in India shorter than that in the US?
  • When will Brexit end?

Instead of adopting the usual approach of talking about the US election ad nauseum, since there is actually no empirical evidence to show that the choice of president makes any difference I thought it might be useful to make some longer-term predictions. I would, however, urge readers not to ignore the obvious, and while many are fretting about terrible outcomes, the financial markets are taking great delight in wrong-footing the maximum number of participants. What if everything went smoothly and there was a quick and clear result? This would definitely catch most people off guard

So I shall now put my neck on the chopping block!

We are still in a secular bull market for stocks (perhaps the greatest one I will see in my career). Secular bull markets (long-term uptrends) tend to last for at least 14 and sometimes as much as 20 years. By my estimation this one started in 2013, so we are only halfway through it. The second halves of secular bull markets are the most powerful in terms of percentage gains. Of course, this does not mean that equity markets will exhibit a linear upward trend every day, but the trajectory will be sharply higher over the next seven years or more.

The secular bull market in bonds is over. Of course there will be days and months when investors will be glad to have some exposure, but longer-dated bonds are likely to be among the worst performing asset classes for an extended period of time. Short-dated bonds will perform better in relative terms as central banks control the yield curve.

Central banks are finally going to be successful in hitting their inflation goals after more than 10 years of failure. In fact, they are going to turn a blind eye to an inflation overshoot. The amount of fiscal and central bank stimulus is truly awesome (with much more to come) when compared to the support provided after the great financial crisis of 2008, which was actually much more damaging in economic terms than the exogenous shock we are currently facing.

The secular bull market in stocks will eventually end in the good old-fashioned way once central banks have to raise interest rates aggressively because they have let inflation run out of control, but the runway and gains for equity investors will be sufficiently large to make what might be described as indecent returns.

Those investors who are cautious at the moment and many more who have been on the sidelines since 2009 will eventually be sucked in towards the end (as always), just in time for the euphoric top before a three to five-year bear market.

The current winners of the pandemic (let’s just call them “misery stocks”) are likely to be significant underperformers for a considerable period of time as sometimes valuations (yes, they still matter and will eventually matter again) reflect circumstances that are as good as they get. Pandemic losers (economically sensitive or, in simple terms, “party stocks”) are likely to produce a huge outperformance.

We are probably going to see a rather large consumer spending boom (aided by large savings rates) and a multi-year travel boom as people more than make up for lost time

In the very immediate term we as individuals are probably feeling somewhat depressed. But as the song goes, it will not be too long before the future is so bright I’ll have to wear shades.




Peter Ahluwalia, Partner
Chief Investment Officer

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Independent Wealth Manager, Founded in 1992