Vaccines a shot of hope to all for 2021, but recovery will vary

THE Covid-19 vaccine breakthroughs - the first piece of good news the world has received in the fight against the pandemic - herald hope that 2021 will be a better year.

Stock markets have already started celebrating, with investors optimistic that most of the world's major economies are on course to recover to pre-crisis levels of economic activity from the middle to late of next year. Further underpinning financial markets is the increase in excess capacity worldwide, which means central banks are likely to remain focused on supporting growth. This, in turn, means the equity bull market is likely to continue throughout 2021, driven by the vaccine rollout, reopening of economies and a recovery in corporate earnings. This stronger economic recovery should feed through to higher corporate profits, reducing default risk and supporting further reduction in bond yield premiums.

But global economic recovery in 2021 is contingent on the easing of lockdown restrictions, recovery momentum and the successful rollout of Covid-19 vaccines. The recovery process will be long and winding as mass vaccination will take time. It remains to be seen when international air travel will resume with confidence and return to pre-Covid levels.