The FTSE 100 was the worst-performing major stock market index in the world in 2020 and three things weighed it down: the coronavirus pandemic, a recession and Brexit. Vaccination programmes, ongoing fiscal support from the government and monetary support from the Bank of England, and the Christmas Eve deal with the EU all raise hopes that each of those factors will have less of a negative influence in 2021.
That said, there is much to be done on all three fronts — especially Brexit. The pre-Christmas deal only covered manufacturing, not services, which represents around half of UK exports and 80% of GDP. As a result, investors will be looking for the government to deliver on its promise of a deal here by the end of March.
A deal on financial services could help sentiment toward banks and insurers, and potentially give a lift to the broader UK economy, as it would give companies a clear idea of what is required and potentially trigger pent-up investment and hiring plans — although the pandemic could have an even greater say here, at least in the near term.
Investors will also be looking toward future trade deals, where agreements with the US, India and Brazil are all potential glittering prizes. Boosts to trade with these nations could help sentiment toward the FTSE 100’s multinationals, such as drinks giant Diageo [DGE] or testing company Intertek [ITRK]. Equally, delays would not be well received and the US has already suggested nothing may happen until 2022, so Brexit believers and bulls of UK equities will be hoping that Boris Johnson’s re-scheduled visit to India later this year unlocks some goodwill at the very least.
Russ Mould has been investment director at AJ Bell since 2014. Prior to that, he was a fund manager at Scottish Equitable and an equity analyst at UBS Investment Bank. Prior to its acquisition by AJ Bell, Mould was the editor of Shares Magazine.
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