Frictions and contradictions

September has ended what now feels like a ‘goldilocks’ summer for investors, and political, societal and
capital market frictions have returned to the stage with a bang. However, the fact that stock markets have
not simply plunged on bad news, but have instead remained surprisingly stable, is a good indication that
economic and market dynamics are not quite as simple as they may appear. Following a summer of hopeful
yet gradual recovery the second wave of Covid has not prompted a sudden return to depression and
decline. The reason for this is most likely that there is a general feeling that we have indeed learned to
cope with the virus, even if we have to accept that things will not return to our old normal for some time


Credit where credit is due

Central bankers have played a vital role throughout the COVID crisis. With the global economy in the grip
of its deepest-ever recession, the world’s central banks have had to inject huge amounts of liquidity into
the financial system and government coffers to stop the health crisis turning into a financial catastrophe.
The US Federal Reserve (Fed) has been the chief protagonist of the crisis response. It has massively
expanded its asset purchase program, rolled out a number of emergency lending facilities and, most
recently, has effectively committed to a ‘lower for longer’ policy on interest rates.


Politics get in the way of Chinese investment

In economic terms, China is one of the best placed of any major economy to recover from the pandemic.
The first country to suffer heavily from Covid was also the earliest to emerge from lockdown, with life
now well on its way back to normal in the world’s second largest economy. Wuhan, a city of 11 million
people and the original epicentre of the virus, is now the focus of a PR campaign from the Chinese
government – encouraging tourists and international businesspeople from all over to come see the
“reborn” city. From the latest economic data, it looks as though China has pulled off nearly a complete V-shaped recovery in the third quarter of 2020.

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