We May Be Facing A Gloomy Scenario For The Start Of 2021

The consensus in the financial markets is that 2021 will be far better than this year. With the prospects of effective vaccines, the world is ready to slowly come back to normal in the year ahead. 

What are the risks of such a scenario? More importantly, if any of the risks materialise, how will financial markets react?

Planning is important in any business, so traders should spend a lot of time planning for the worse and hoping for the best. In financial terms, this is called risk management.

What Can Go Wrong?

The biggest risk of them all comes from the way the pandemic evolves. The new virus strain discovered in the United Kingdom has quickly spread to fourteen other countries. While vaccination is underway, it takes time until a critical mass of people gets vaccinated – precious time as the new strain spreads much faster than the initial one. The logic tells us that if governments in countries like the United Kingdom, Spain, France, or the United States, had a hard time containing the first variant, they will have a more difficult struggle with this new mutation of the virus.

The good news about vaccines brought much-needed hope. But it also brought relaxation and people letting their guard down.

While we can see the light at the end of the tunnel, the road to it is still long. If the new variant spreads, as studies show, a country with 10% of the population already recovered from the illness and that expects to vaccinate 5% of its population a month would only reach immunity in September next year or so. With the new strain, a higher level of herd immunity is needed (75%-80% when compared to the initial 60%), pushing the date to December 2021- January 2022.

Markets will not remain indifferent to such developments. Now it is the end of the year, and people prefer to focus on something else. But the months ahead are critical in both how the world deals with the pandemic and how governments deal with the economic situation.

So far, during the pandemic, countries lived from borrowing and printing money. The more these habits prolong in time, the more difficult it is to come back to normality.

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Disclaimer: None of the content in this article should be viewed as investment advice or a recommendation to buy or sell. Past performance/statistics may not necessarily reflect future ...

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