This month’s theme reflects the death toll from the coronavirus pandemic, and particularly its alarming rise in countries where individual freedom is the most prized. The contrast with countries where people are prepared to sacrifice personal liberty in order to save lives is striking. In what we might call ‘Confucian’ countries, such as China and Japan, Covid-19 has been virtually eliminated and the death rate from this infection is running at 4 per million inhabitants, compared with 686 in the USA. The extensive use of intrusive technology to the detriment of individual freedom explains the success of China’s campaign. Never mind QR codes for coronavirus status – in the West, facial recognition techniques using CCTV are banned in the name of liberty. Google/Apple tracking apps do not work when they are not obligatory. In Taiwan, total success in the form of zero cases followed the population’s willingness to sacrifice some of its personal freedoms. Despite a population of 1.4 billion, China is reporting only 40-odd new cases per day at the moment, and no deaths. The data may have been massaged, of course, but the fact remains that 600 million people travelled around China during the recent Golden Week, and 4.9% GDP growth in Q3 lifted the Chinese economy above its level of activity recorded last year. In New Zealand, the eradication of coronavirus also involved popular acceptance of drastic limitations on personal freedom.
In most of our liberal democracies, we have tried to save lives as well as the economy. The result has been to save neither. We could instead submit to extraordinary powers to locate us using technology and that would oblige us to declare an infection (on pain of a heavy fine) and self-isolate, again verified by technology, and with a softer version of the internal passport system used in China. This sort of regime could also oblige Gafam to contribute to a ‘war chest’ rather than make billions of profits out of other firms’ misfortunes. We’ll leave it to our readers to weigh up the pros and cons, not to mention our children and grand-children in philosophy classes.
Hopes currently lie with an effective vaccine, rapid tests and miracle drugs. Without them there seems no end to the crisis. The introduction of electronic health records has been delayed for two decades amid privacy concerns, but is again a matter of urgent debate. EHRs could have saved thousands of lives during the pandemic and would reduce healthcare costs dramatically.
Equity markets have traded sideways over the past two months and have struggled to match their highs. The most recent correction can be attributed to Covid-19, as the outcome of the US presidential election does not appear to matter much to investors. Where the markets have gained, it is down largely to Gafam.
GDP growth forecasts for 2020 are being marked down. The world economy is set to shrink 3.97%, compared with last month’s estimate of a 3.85% contraction, with Europe responsible for most of the damage. China is coming through the crisis triumphant, with a revised 2% gain in GDP likely this year. Forecasts for India have worsened dramatically. The outlook for US GDP has improved: a 4.2% followed by a sluggish 4% rebound in 2021. The world growth rate is expected to be 5.15% next year, again following downward revisions.
Central bank liquidity injections will intensify. The second US stimulus package will be worth
[-3 trillion, depending on the election result, and the ECB has no choice but to cover massive government deficits within the EU. US interest rates are at zero at the front of the curve but inch higher from the 3-year maturity outwards; the the euro zone they are negative out to 30 years. US Q3 earnings were a great surprise at 14% better than expected; that has limited the likely drop in EPS to 18% this year. A 23% rebound in 2021 would take profits back to their pre-crisis level. The improvement in earnings has been offset by an uptick in the US 30-year yield from 1.4% to 1.63%, however, and our S&P 500 objective has eased from 3,448 to 3,306 points, pretty much where it started this month. The index 2021 PER is 19.9. We are maintaining the overweight recommendation that we introduced on 28 March, at 2,600 points.
