The Trading Year in Review
This time last year headlines were being made about a novel corona virus infecting residents in Wuhan, Hubei province, China. After China architected one of the largest lockdowns of a population in peace time, and even history, to contain the virus, the rest of the world entered the new year assuming the problem was isolated to Wuhan. However, as we entered the first quarter of 2020, it became increasingly apparent that the attempts to contain the virus within Chinese shores had failed.
Virus cases started to soar across the world. Governments were left scrambling to protect their populations. Travel bans, lockdowns and social distancing were all implemented to attempt to prevent the virus from spreading. Economic activity collapsed globally and with it, financial assets. Millions were furloughed and children were kept home. People have since adjusted to the new norm of working from home and simultaneously juggling being in lockdown and free to carry on with their lives. In the UK as in other parts of the world, people found themselves queuing outside shops for food and rationing of certain goods took place. Scenes that we have not seen since war time.
A corollary of the virus was oil prices going negative for the first time in history. As the global economy ground to a halt, traders started to see less demand for oil. Price for storage went up and capacity decreased which led to fears that we could have oil being produced and no where to put it. People were paying others to take oil off their hands.
With financial markets in a tailspin, central banks stepped in to offer support as they have so often in the past. What they offered was on an unprecedented scale, dwarfing the support provided in the global financial crisis (GFC). Fiscal support was utilised along with monetary policy easing across the world. Though one could argue the response was correlated and not co-ordinated as in the past. Even Europe, which is headed by fiscal hawks in Germany, were able to construct a package to aid battered economies. Delivery of this still waits till the new year.
Markets sky-rocketed on the support offered. S&P bounced about 60% from the lows it saw in the year and NASDAQ almost 80% with some of the components more than doubling in price. Many investors who had seen their portfolios decimated obtained some reprieve.
As if the above were not enough, 2020 bore witness to the US presidential elections. President Trump (at the time of writing) met heavy criticism for his handling of the virus. The financial markets priced in a blue wave victory but come election night, the count was much closer than people anticipated. The media have declared Joe Biden the winner, but this has not been officially acknowledged at the time of writing. President Trump has launched legal cases across contested states whose outcomes and implications are currently unclear. Perhaps there is another part of this 3D chess game to be played out.
Vaccines with very high efficacy rates were announced at the start of November. This added more fuel to a market that had been on fire since April. Suddenly it seems like the spectre of the virus may be behind us even though long-term side effects and the willingness of people to take the vaccine once it is available remain questions that need to be answered.
Through all the above the trading desk at QP remained steadfast in our ability to serve our clients. The trading desk continued to offer ideas, structure trades, monitor risk across portfolios and execute trades across asset classes and geographies. We utilised our experience to navigate illiquid markets and ensure that portfolio managers could continue to focus on managing risk. Our cross asset and multi-geographical experience and insight was an invaluable tool for our managers who were much more engaged in dialogue to manage their books as they have ever been. Subsequently we enter 2021 with the lessons of 2020 firmly etched in our memories. We will add the experiences this year has given us to the deep well of knowledge that we have to add even more value to our clients, current and prospective, going forward.
Just as we are about to hit send on our annual review, a second strain of the virus has been reported in the UK and cases of it are appearing elsewhere across the world. Part of England and the South East have been put back onto the strictest form of lockdown and travel restrictions have been issued. This has added complexity to the BREXIT negotiations with a deal still the base case. Additionally, a $2.3trn stimulus package out of the US is awaiting Donald Trump’s signature. But being 5600 pages in length and no one truly understanding what it contains, we are on pause.
As we enter 2021, the market is of the view that there will be synchronised global growth and we have seen the worst. Investors are in a hurry to forget this year and look forward. The unintended consequences of what has been implemented this year are questions to be answered in the distant future. We have seen this story before.
Whether you agree or disagree contact us to see how we may assist you in what may turn out to be an even more volatile 2021.
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Quay Partners Group delivers bespoke investment management solutions to independent hedge fund managers and family offices.
Supun Ekanayake, Partner, has over 15 years’ experience in trading hedge funds.