Performance, December 2020


Positive vaccine news – and negative news about virus mutation
The sentiment in global financial markets is primarily controlled by the development in the corona pandemic. In December, spirits were high, due especially to the fact that several countries have now started their vaccine programmes. In addition, we heard optimistic tones from vaccine producers which all in all result in prospects of a production of up to 10 billion doses of vaccine in the course of 2021. Several industrialised countries hold prospects of approaching a situation close to herd immunity over the autumn. This implied that investors were able to see through new short-term challenges in the form of a mutated version of the virus which is much more contagious than the original version of the virus. It has already hit the UK hard and has spread to other countries.

The parody concerning the transfer of power in the US continued – and prospects of a re-election in Georgia
The incumbent US president Donald Trump continued his parodic handling of the transfer of power. On several occasions, he has attempted to raise doubts about the legitimacy of the coming president, Joe Biden. However, there has been every indication that several prominent Democrats as well as Republicans would rather defend the democratic processes than a retiring desperate president. Investors have managed to see through this whereas they felt more strongly about the balance of power in the US Congress. The Democrats hold the majority in the House of Representatives whereas the Republicans have a narrow majority in the Senate. A re-election will, however, take place in Georgia in early January concerning the two seats in the Senate. If the Democrats win both seats, which seems to be the case at the time of writing, the coming president may obtain a majority in both chambers of the US Congress. Among investors we have seen certain concerns relative to for instance tax increases.

A Brexit deal between the EU and the UK made slow progress to the last minute
Although Brexit for a long time gave rise to uncertainty among investors, the British prime minister Boris Johnson and EU president Ursula von der Leyen finally, in the dying minutes of 2020, agreed on a British exit agreement which will, however, have to be ratified by both the British parliament and among EU's member countries. There are many indications that the exhaustive process will result in a final ratification of the deal, but many questions of doubt are still involved. Consequently, the market reaction has also been relatively moderate.

Market performance
The global equity markets continued the upswing in December, and the global equity markets hence completed the strong comeback following the plunge in the spring. Optimism was boosted by commenced vaccination programmes and the prospects of up to 10 billion doses in the course of 2021. The sole region which did not land in positive territory for the year was Europe since Europe has a larger proportion of the company types which have been hit hardest by the coronavirus pandemic, especially energy and financials. Also, Denmark was a noticeable exception since listed Danish companies have a more defensive and sustainable profile. Both aspects were very popular, and consequently Danish equities ended at an impressive return of approx. 30% - boosted primarily by Novo Nordisk, Vestas and Ørsted.

In December, bond yields were unchanged to slightly declining. In Denmark, the vaccination programme has commenced but infection numbers have also been on the increase, and new restrictions have been introduced. The impact on the economy is, however, expected to be moderate and instead investors focus on the vaccines being in place and look forward to seeing these put an end to the pandemic. In Denmark, we have seen a heavy demand in the mortgage credit market. This resulted in declining yields on especially convertible bonds and to a lower degree ‘flex loan’ bonds.

The positive trend in emerging bond markets continued in December. The credit spread narrowed from 3.8 per-centage points to 3.38 percentage points. Investors have returned to the emerging markets. There is hope that the economies will gain some momentum due to Covid-19 vaccinations in the coming months. This has resulted in rising yields in the developed markets and the more conservative emerging market bonds whereas it has been positive for the more risky countries. The crux of the matter is the logistics around the vaccines and the economic factor of these countries, measured in terms of the primarily young and healthy populations. An increase in the oil price and a number of other commodities has also supported external balances and budgets for the many countries producing and exporting commodities. Finally, the IMF and other global organisations show great willingness to grant economic aid to countries which have been seriously hit by the coronavirus crisis.     

Credit spreads narrowed in December supported by positive news about US fiscal policy rescue packages and a British exit deal with the EU. The new rounds of Covid-19 lockdowns have so far not had any spill-over effect on the credit spreads. Market expectations still point to a continuation of the ECB’s purchases of both government and corporate bonds in 2021, which help keep credit spreads at a low level.