Market Update - COVID-19 - February 22, 2021 Close unless otherwise stated - Aon
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For Professional Clients Market Update – COVID-19 February 22, 2021 Close unless otherwise stated The opinions referenced are sourced from Aon as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice. Past performance is not a guarantee of future results. Prepared by Aon
Our Views
Latest Views
• The Covid-19 vaccine roll-out and the outcome of the US election with a slim democrat sweep reduces adverse playout
probabilities, limiting downside in risky asset markets and putting a floor on bond yields.
• We are neutral on equities but emphasise that style, sector and regional views are more important at this stage. We
believe that value and non-US equities will be beneficiaries from a recovery in 2021.
• Bond yields have risen on the back of further stimulus and potential shifts in inflation. We believe that there are risks to yields
creeping higher but that bond yields below inflation levels reflect a policy choice to prioritise weak public finances. This is
unlikely to change.
What should clients be doing?
• Not carry large portfolio over or underweights to equities in this environment and carefully manage style and regional
biases.
• Be more selective in credit markets as spreads have reduced meaningfully. Focus on segments where other premiums exist.
• Assess diversification and add to unique diversifiers that help reduce dependence on equity and government bonds.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 2COVID-19 Update
New COVID-19 Cases
Current Situation Asia Pacific South Asia Middle East Europe North America South America Africa
(22 February 2021) Feb 18, 2021
Feb 08, 2021
Global Jan 29, 2021
Confirmed 111,102,016 Jan 19, 2021
Cases Jan 09, 2021
Deaths 2,462,911 Dec 30, 2020
Dec 20, 2020
Europe Dec 10, 2020
Nov 30, 2020
Confirmed 37,679,536 Nov 20, 2020
Cases
Nov 10, 2020
Deaths 840,485 Oct 31, 2020
United States Oct 21, 2020
Oct 11, 2020
Confirmed 27,773,047
Oct 01, 2020
Cases
Sep 21, 2020
Deaths 493,976 Sep 11, 2020
Sep 01, 2020
50,000 150,000 250,000 350,000 450,000 550,000 650,000 750,000 850,000 950,000
Source: FactSet, World Health Organization, National Health Authorities.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 3COVID-19 Virus Trajectory
• Covid-19 cases continued to surge globally with new coronavirus strains identified across the world. However, equity markets
continued to deliver positive returns as several major vaccines have received approval with the vaccination process starting in
many developed economies.
• A new Covid-19 strain was identified in the UK and is believed to be up to 70% more transmissible than the previous dominant
variant. It has caused the virus situation in the UK to re-escalate and the variant has now surfaced in other countries around the
world. Major European countries including the UK, Germany, Netherlands and Sweden imposed strict lockdowns after a rapid
surge in Covid-19 cases and deaths. Elsewhere, South Africa has halted the rollout of the AstraZeneca/Oxford vaccine after initi al
evidence suggested that the vaccine was not effective against the new local variant of the virus.
New cases per 1 million (7-day moving average) New deaths per 1 million (7-day moving average)
USA Spain Germany France
USA Spain Germany France
UK India Brazil Canada UK India Brazil Canada
1000 20
900 18
800 16
700 14
600 12
500 10
400 8
300 6
200 4
100 2
0 0
Apr-20 Jul-20 Oct-20 Jan-21 Apr-20 Jul-20 Oct-20 Jan-21
Source: Aon, World Health Organization.
Data as at February 22, 2021. Please note; Spain data as at February 19, 2021.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 4COVID-19 Vaccination Progress
• Israel leads the vaccination race as the country was able to secure supplies of the Pfizer/BioNTech vaccines as a result of e arly
negotiations. Data from Israel’s health ministry suggested that the Pfizer and BioNTech Covid -19 vaccine is 89% effective in
preventing infection and 94% effective in preventing symptomatic infection.
• Meanwhile, the UK has led major developed economies in terms of vaccine roll-out having started vaccinations in early December.
• Tensions between the EU and AstraZeneca rose after the drug maker signalled that it would greatly undershoot its original EU
production targets. In response, the EU threatened to impose export controls on the Irish border after AstraZeneca remained
committed to their UK production targets. The move by the bloc received widespread criticism around the world and the EU late r
reversed its stance on potential export controls.
Note; US, Germany and Israel data as at Feb 21, 2021. UK and France data as at Feb 20, 2021. Canada data as
at Feb 19, 2021 and Spain data as at Feb 18, 2021.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 5A historically bad recession, but markets are pricing in a sharp recovery amidst
optimism over vaccine development
▪ Economies had slow growth in Q4 and economic
GDP rebounded in Q3 but the recovery slowed in Q4
activities remained below pre-pandemic levels.
▪ The US economy grew at 1% over Q4 2020
following the 7.5% growth recorded in the
previous quarter.
▪ The UK economy suffered its worst annual
economic contraction in more than 300 years as
GDP fell by 9.9% in 2020. However, the UK
economy grew by 1% in the final quarter of 2020.
▪ The Chinese economy expanded by 6.5% in Q4
2020 and became the only major economy in the
world to grow in 2020 as the economy expanded
by 2.3% over the full year.
Source: Bloomberg
UK ordered a third national lockdown while Germany also ▪ Vaccine approval process gathered pace amidst surge in
extended its stringent lockdown until the end of January. cases due to new variants of the virus.
80 UK US Germany
% Change in Apple Maps Routing
Gradually picking back
60 up as lockdown ▪ The UK Medicines and Healthcare products
Requests from Drivers
40 measures are relaxed Regulatory Agency and the European Medicines
20 Agency both approved Moderna’s Covid-19
0 vaccine on an emergency basis.
Sharp falls
-20 in trips
New lockdowns ▪ Meanwhile, Johnson & Johnson’s single-dose
as second wave
-40 outside as hits Covid-19 vaccine trial reported an overall efficacy
the rate of 66%. Another US biotech company,
-60 lockdown
-80 started Novavax, reported an 89% efficacy rate in a UK
9-Sep
13-Jan
26-Jun
22-Jan
28-Jan
11-Jun
11-Jul
26-Jul
7-Jan
12-Feb
27-Feb
21-Feb
6-Feb
23-Nov
23-Dec
24-Oct
8-Nov
8-Dec
27-May
9-Oct
12-May
13-Mar
28-Mar
10-Aug
25-Aug
24-Sep
27-Apr
12-Apr
phase-3 trial and is also effective against other
variants.
Source: Apple. 7-day moving average show n.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 6Market Reactions
The equity market has
calmed down but
remains on edge
Past performance is no guarantee of future results.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 7Market Reactions
Real Yields (%)
0.0
-0.5
-1.0
-1.5
-2.0 -1.84
-2.5 -2.13
-3.0 -2.50
-3.5
Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21
10-year 20-year 30-year
Source: Bloomberg
Past performance is no guarantee of future results.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 8Market Valuations
Equity markets are looking expensive when valued using near-term forward earnings, but markets appear to be looking
through near-term weaknesses. Note that forward looking measures of value may be using stale estimates, as the
economic impact is so uncertain.
22-Feb-21 31-Dec-19 Expensive relative to
100%
historical averages
90%
80%
20 Year Percentile Rank of Valuation
70%
60%
50% Cheap relative to
historical averages
40%
30%
20%
10%
0%
MSCI ACWI S&P 500 FTSE 100 Global Credit US Credit UK Credit High Yield 10y US 10y UK GBPUSD GBPEUR
12m Fwd P/E 12m Fwd P/E 12m Fwd P/E Spread Spread Spread Credit Spread Treasury Gilt Yield
Yield
Equities P/E Yields and Spreads (Reverse scale) Currency
Source: Aon, Factset
Notes: Valuations used: Equity markets = Next Tw elve Month PE Ratio, Credit Spread = Option Adjusted Spread, Treasury Yield =Yield To Maturity
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 9Central Bank Actions
• Where possible central banks around the world have eased policy, but with rates being low there is a limit.
• Unprecedented new quantitative easing measures have been announced to provide further monetary stimulus.
Central Bank Policy Rates (%) Central Bank Balance Sheets as % of GDP
Start of 2020 Today 12/31/2009 12/31/2019 9/30/2020
120%
2.0
100%
1.5 BoE emergency rate cut takes The Federal Reserve is
the base rate to an all-time purchasing an unlimited
80%
1.0 low of 0.1% amount of treasuries,
corporate bonds and
60% other credit assets
0.5
40%
0.0
-0.5 20%
-1.0 0%
US UK Japan Eurozone
US UK Japan Eurozone
Source: Aon, Bloomberg, FactSet. Balance sheets to GDP ratios as at 30/9/2020 have been calculated using GDP figures from the end of 2019.
Past performance is no guarantee of future results.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 10Fiscal Packages Are Large Across the G20
USA
▪ President Biden signalled his plans for a
new stimulus package worth an
estimated $1.9tn and signed several
executive orders on his first day in office.
The proposed stimulus package would
add to the previous package worth
$900bn which was signed by President
Trump in December 2020.
UK
▪ A new £4.6bn financial support package
for companies and local authorities
affected by the imposition of new
lockdowns.
▪ £330bn in loans and £20bn in other aids
have been announced to provide help to
businesses.
▪ The government has agreed to cover
80% of salary for employees who are
unable to work due to coronavirus
related shutdowns. The scheme has
been extended and will now end in
Spring 2021.
EU
▪ The EU passed the bloc’s €1.8tn budget
and recovery package after Hungary and
Source: IMF Poland reversed their vetoes. The
Note: UK data as at July 2020. European Central Bank increased the
size of its Pandemic Emergency
Purchase Programme from €1.35tn to
€1.85tn and extended the program until
March 2022.
23 February 2021
Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 11Appendix BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, "Barclays"), used under license. Bloomberg or Bloomberg's licensors, inc luding Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2021. FTSE Russell is a trading name of certain of the LSE Group companies. FTSE®, Russell®, FTSE Russell®, MTS®, FTSE4Good®, ICB®, Mergent®, The Yield Book®, is/are a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Gr oup company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rel y on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indicati on or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. 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Unless we provide express prior written consent, no part of this document should be reproduced, distributed or communicated to anyone else and, in providing this doc ument, we do not accept or assume any responsibility for any other purpose or to anyone other than the addressee(s) of this document. Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a r ating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation's system s and controls or operations. This document and any due diligence conducted is based upon information available to us at the date of this document and take s no account of subsequent developments. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything. Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we cannot research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard. Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of da ta and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events. 23 February 2021 Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 12
Aon Solutions UK Limited Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 4396810 Registered office: The Aon Centre | The Leadenhall Building | 122 Leadenhall Street | London | EC3V 4AN To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the prior written consent of Aon Solutions UK Limited. Aon Solutions UK Limited does not accept or assume any responsibility for any consequences arising from any person, other than the intended recipient, using or relying on this material. Copyright © 2021 Aon Solutions UK Limited. All rights reserved. 23 February 2021 Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority . 13
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