What Tomorrow Brings

Searching for Growth
November 26, 2020
Financial food for thought in 2021
January 22, 2021
Show all

2020 has been a challenging year; this is the consensus view. Although we started the year on an excellent footing, financial markets were soon decimated, within the first three months, as the coronavirus pandemic spread like wildfire across the world. Our research, an investment strategy for the worst of times, combines behavioural finance with statistics and identified common investor behaviours that often shape financial markets during global recessions. History may not always repeat itself, but it often rhymes. True to form, the behaviour of financial markets has been similar to that experienced during previous global recessions –

  • A sharp contraction in real activity in many countries around the world,
  • Oil consumption declined as with every global recession except for the 1991 episode,Financial markets and business confidence levels were depressed,
  • Inflation fell, giving further license for central banks to reduce interest rates,
  • Monetary and fiscal policies became expansionary,
  • Financial conditions loosened, and•Equity markets recovered quickly, and Value stocks outperformed Growth stocks during this inflection point.


At this time of year, you would by now have read many letters or research articles predicting the key trends or themes to watch out for in 2021. We will add to this clutter, but do so by looking at the key trends that transpire when economies recover from deep recessions –

  • Global financial markets have tended to rally as economic recoveries have strengthened over time–so we expect further equity price momentum in 2021 unless we experience sharply rising inflation (stagflation),
  • House prices have tended to remain depressed for two to three years after a deep recession,
  • Credit growth has also generally taken longer to attain the rates observed during non-recession periods,
  • Monetary policy has played a crucial role in restoring financial markets' health while limiting the economic downturn – we expect monetary policy to continue supporting the ensuing global recovery.
  • Countries that cannot sustain expansionary fiscal policy may face tremendous challenges ahead. The strength of the global recovery has historically been different across countries and country groups. Following the 2009 global recession, advanced economies experienced the weakest recovery because they withdrew fiscal support out of concerns for public debt growth.

Despite the challenges experienced in 2020, the positive news around the development of a vaccine has fueled positive momentum in global equity prices over the last two months. History tells us that Global recoveries have generally been characterized by a broad-based rebound in economic activity and a normalisation of financial conditions. We hope you will have a great and restful festive season on this positive note because we have a lot to look forward to in 2021.

Kose MA, Sugawara N, and Terrones ME. (2020). Global Recessions. World Bank Group Policy Research Working Paper.


Ndina Rabali, Teboho Tsotetsi, and Bhekinkosi Khuzwayo

Lima Mbeu Investment Managers (Pty) Ltd is an authorised financial services provider in terms of section 8 of the Financial Advisory and Intermediary Act, 2002, FSP number 49018, Registration No 2017/399814/07. This document is for information purposes only. Past performance is not indicative of future performance. The information contained herein is derived from sources which are believed to be reliable. Any opinion expressed herein is based on the presenter’s current analysis and is subject to change. This presentation does not constitute an offer to sell or a solicitation to buy any security. Lima Mbeu has a conflict of interest policy which outlines how conflicts of interest are managed. This policy, as well as additional information about Lima Mbeu’s products, is readily available upon request or on our website: www.limambeu.co.za

For more information, contact Ndina Rabali: Email: ndina.rabali@limambeu.co.za
Tel: 010 023 0113; Address: Fredman Towers, 13 Fredman Drive, Sandton, 2196