Day: 30 December 2020

By John Husselbee, Head of Multi Asset at Liontrust Asset Management

Annual reviews are always challenging to write, with many ending up as little more than a list of market and macro events and some mild crystal ball gazing to finish. With 2020, it is hard to know where to start given everything that has transpired and, if anyone needed reminding, the year has also exposed the futility of making economic predictions: in December 2019, no one was predicting a small strand of replicating protein would bringing the activities of the most successful species on the planet to a near standstill for large swathes of the next 12 months.

With this in mind, we have borrowed the approach of Oxford Languages, who have faced their own struggles when trying to review 2020. In the past, the language specialist has always come up with a word of the year (2016 gave us post-truth for example) but the events of the last 12 months, and the linguistic development required to capture them, has meant a whole list of words of 2020 rather than a single representative.

This framework gives a good indication of how such an unprecedented year has developed (definitely the word of the early Covid months, with every market review and article at pains to stress the exceptional situation). If we go back to pre-Covid however – or BC, which makes the list – the dominant words highlight factors that should continue to shape the future when the world can finally look past the current crisis.

We came into 2020 with markets fairly buoyant on the back of positive news of a potential trade deal between the US and China and some clarity on Brexit negotiations, two issues that had dominated headlines and sentiment for the previous few years. At this point, there were only rumblings of a viral outbreak in China and the risk this would spread to the West was far from most investors’ minds.

With climate emergency Oxford Languages’ term of 2019, this focus continued into 2020 with bushfires a key word in January as Australia’s season was the worst on record, coming to be known as the Black Summer. While media attention on climate change has understandably dropped off amid the pandemic, there are signs of this long-term focus returning to public consciousness and we will come back to the area later.

Politics and economics tend to be common areas of changing language, with squeezed middle, big society, and credit crunch all previous words of the year, and the main focus of 2020 has been the US presidential story, which culminated in a tumultuous victory for Joe Biden in November (again, more on that later). In February, controversy continued to swirl around President Trump and impeachment and acquittal were common words around the trial, just the third in history after Andrew Johnson and Bill Clinton.

While cases of that ‘virus’ had continued to escalate in China, numbers began picking up in the UK and other countries from March. This led to use of Coronavirus spiking before giving way to Covid-19 and now well-worn phrases such as lockdown, social distancing, remote working and furlough (the latter previously a military term) in April and beyond as the grim reality hit home. To give a quick history lesson, the word Coronavirus dates from the 1960s, but before 2020 it was largely the preserve of scientific and medical specialists. Covid-19 is a completely new word this year, first recorded on 11 February in a report by the World Health Organisation (WHO) as an abbreviation of coronavirus disease 2019.

These early stages also saw the description of the disease move from epidemic, meaning widespread in a community, to pandemic, where it has spread far more widely, across a whole country, multiple countries, or ultimately the world. Before this year, epidemic was the more commonly used, but on 11 March, WHO announced it was characterising Covid-19 as a pandemic, and its frequency has increased over 57,000% since last year. As countries around the world came to realise the serious nature of the disease, language around it also became more militaristic, with frontline medical staff battling the pandemic.

Some of the less pugilistic terms to emerge have included mask shaming (for those unwilling to wear the now uniform face coverings), covidiot (referring to someone who disobeys guidelines), and, a potentially key demographic when writing this outlook piece in the 2050s, coronials, the generation of babies conceived during lockdown.

Tracking the changing situation as the year progressed, we saw phrases such as shelter-in-place (in the US) and self-isolate give way to reopening and easing in summer, with people able to form support bubbles with other households where necessary. As a second wave subsequently descended and new lockdowns were introduced, terms such as firebreak, circuit breaker and tier increased in September and October, all signifying different levels of restrictions around the world. Before the more positive vaccine news of recent weeks, the UK’s mounting desperation to apply positive spin to the situation was signified by the use of moonshot as the name of a mass testing programme, with this word rocketing to the top of usage charts in September.

Another result of something so all-encompassing as Covid-19 has been a surge in amateur epidemiology, and the government’s own claim to be following the science is a phrase that has increased in frequency over 1,000%. Most of us are now perfectly happy discussing superspreaders and the R number, with terms such as flattening the curve part of everyday small talk, as is ongoing concern at the lack of personal protective equipment.

Beyond Covid, black awareness rightfully gained greater prominence this year and Black Lives Matter rose in usage from June and remained high as protests against law enforcement over the killings of George Floyd, Breonna Taylor and others have continued. This febrile atmosphere was a key part of the US election, which proved among the most controversial in history and the losing candidate is still refusing to accept defeat at the time of writing. Much of the Trump camp’s attempt to interfere with the result focused on forcing recounts, with huge numbers of Americans – 80 million, twice the number from 2016 – voting by mail. Mail-in was therefore a heavily used phrase in the autumn, with a 3,000% rise compared to last year.

Moving towards the end of 2020, there are signs of people looking beyond this year and its challenges, with net zero in heavy use on the back of commitments to a green industrial revolution in the UK and the historic pledge by President Xi Jinping in September that China will be carbon neutral by 2060. Of course, Covid’s tentacles have also stretched into the world of climate change, with a new term, anthropause, coined in June to describe some of the more welcome ecological consequences of lockdown.

As we start to think about 2021, we would add our own word to the list in the shape of efficacy, with people around the world preoccupied with success rates of the various vaccines emerging to combat the virus. Use of the word vaccine has obviously increased hugely (by 400% compared to last year), as has anti-vaxxer, with controversy expected as governments attempt widespread rollouts.

With 2020 showing the lack of value in economic guesswork, what is worth saying as we head into another year? There is clearly considerable economic uncertainty despite vaccine news, with spiralling unemployment and huge debt burdens – and these are global rather than regional issues; for once, most of the world is genuinely in the same boat so we are likely see ongoing collaboration between central banks and governments to support recovery.

After a difficult year – and longer if we consider the shadow of trade wars – 2021 does at least promise the end of three market-influencing factors, which could mean more market clarity than has been the case for some time: the first is the transition from Donald Trump to Joe Biden, the second is a reduction in the impact of Covid-19, and the third is the Brexit fiasco.

We expect the current divided US government (with Republicans retaining the Senate and Democrats the House) to remain and this could mean stimulus to combat Covid is slower to come than needed. A broader return to more traditional politics and a calmer approach to international relations could be positive for the rest of the world, however, after a long period of trade volatility and increasingly protectionist policies. If nothing else, Covid-19 has reminded the world we are all one species and can achieve more together than divided.

Elsewhere, the hope is that the vaccines already announced, and others to come, bring an end to Covid uncertainty and recent market moves suggest investors have at least been able to recalibrate expectations for many companies now that some return to normality is in sight. Finally, after more than four years of wrangling, the Brexit situation is close to its endgame, for good or ill, and I echo the view of our UK equity manager at Liontrust Anthony Cross, who has said that once the politicians get out of the way, companies can come in and make the best of whatever situation emerges.

There remains uncertainty in all three of these areas but, if nothing else, they should bring more clarity in 2021. This may help restore the disconnect between stock market hope and economic reality, which, for us, has continued to underpin – and simultaneously undermine – surging stock markets throughout this year, particularly in the US where narrow tech leadership still prevails.

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