The beginning of 2021 was rocky for Britain. The exit from the European Union unleashed an enormous amount of red tape that left some industries desperate for help, and the country was once again locked up due to the rapidly spreading coronavirus.
But there was a glimmer of hope. More than four million people in Britain have been partially vaccinated against the coronavirus, a promising rate of vaccination.
Investors looking for a wave of optimism about vaccine deployments have turned to the UK stock market, which started the year strong, jumping more than 6 per cent in the first week.
In the first two and a half weeks of January, the FTSE 100, the UK index of large companies, rose 4.3 percent – more than the S&P 500 index, which rose 2.6 percent, and the Stoxx Europe 600 index, which was higher 3 percent. Even when profits are converted into US dollars, the FTSE 100 still has a clear lead.
Apart from the deployment of vaccines, which are helping an economic recovery, investors are another factor: the relative cheapness of UK stocks.
The UK FTSE 100 index benefits from an investment strategy in which traders buy so-called value stocks. These are companies that are supposed to be trading below their fair value because their business was interrupted by a recession, especially in the financial and energy sectors, and the FTSE 100 holds a large share of these stocks.
Analysts at Citigroup describe the UK stock market as their ‘favorite’ value trade.
“I want to emphasize that the much-loved and terribly awful UK market could be worth it this year,” Robert Buckland, a Citigroup stock strategist, said in a presentation last week. “We all know it’s been a place to avoid for many, many years.”
The UK stock market has been lagging behind for years.
The annual returns of the FTSE 100, after being converted into dollars, have been the worst of the three indices for the past nine years.
Why are investors now betting on a turnaround? For one, many of them are ready for a bargain. The stock market has been dominated by shares of US tech companies that are expensive, which makes some investors nervous about how much they can keep rising. Cheap stocks in industries that tend to perform well during economic boom times offer an alternative.
And then there is Britain’s free trade agreement with the European Union. Some investors have set aside whether it is a good or bad deal, in favor of the relief that an agreement was reached at the end of December.
The agreement “has reduced people’s overhang of uncertainty”, said Caroline Simmons, the UK’s chief investment officer at UBS Global Wealth Management.
The new Biden administration gets its first dose of economic reality on Thursday morning when the Labor Department reports the latest weekly data on initial jobless claims.
Last week, the government reported an increase in the demand for unemployment benefits, with more than one million new claims, as restrictions and barriers related to pandemic take a serious toll on employment.
The virus has barely declined since then, with the death toll exceeding 400,000 in the United States, and few economists expect the retrenchments to be significant. Although job losses have been concentrated in service industries such as restaurants and leisure and entertainment, the wider economy has also recently shown signs of slowing down.
“I think it’s going to be another bad number, but something we saw last week was catching up after the holidays,” said Diane Swonk, chief economist at accounting firm Grant Thornton in Chicago. “I think we will be able to see on Thursday how much catching up and how much deteriorating economic conditions there were.”
The start of vaccinations in December provided optimism about a rapid turnaround, but the slow pace of action in many parts of the country has brought hope back. On the other hand, the passage of a $ 900 billion emergency relief package late last year and the prospect of more aid under the Biden government allayed fears of a double recession.
An additional $ 300-a-week unemployment benefit could encourage more people to apply, says Carl Tannenbaum, chief economist at Northern Trust in Chicago. The increased assistance was part of the new stimulus effort.
In general, the best income for the economy is more vaccinations, said Mr. Tannenbaum said.
“There is no better economic stimulus than a successful vaccination of vaccines,” he said. “It reduces the risk of human interaction and provides a basis on which different types of businesses can open more sustainably.”
Suriname, Guyana and Brazil are the new focus areas for oil companies, attracting more new investment than the Gulf of Mexico and other more established oil fields. They help keep global oil prices relatively low, and undermine the efforts of Russia and its allies in the Organization of the Petroleum Exporting Countries, such as Saudi Arabia, to manage global supply and push up prices.
The recent interest in Guyana and Suriname is surprising because their promise as oil producers has often become empty, reports Clifford Krauss, The New York Times. Businesses drilled more than 100 unsuccessful wells there, mostly in shallow water, from 1950 to 2014. But after rich fields were found in the deep waters of Brazil, Exxon Mobil and other companies returned to look again. Exxon struck a wave in Guyanese waters in 2015, opening the current wave of reconnaissance.
In Guyana, according to IHS Markit, the energy consulting firm, oil companies have found more than 10 billion barrels of probable reserves of accessible oil and gas abroad. Production began in 2019 and is rapidly pushing up. According to consultants, Guyana is already responsible for one of the top 50 oil basins worldwide.
Suriname has at least three to four billion barrels of reserves, energy experts said, or up to half of the new oil and gas discovered around the world last year.
Oil companies say they can make money in Suriname with oil prices as low as $ 30 to $ 40 a barrel due to lower costs. This is roughly equal to the threshold in Guyana and well below today’s oil price. It is also in many places below break-even levels, including some U.S. shale fields, where the cost usually runs to nearly $ 50 a barrel.
United Airlines lost $ 1.9 billion in the fourth quarter, bringing its total losses for 2020 to just over $ 7 billion, the worst year since the merger with Continental Airlines a decade ago. Despite the terrible loss, the airline said it would be a ‘transition year’ of 2021 as it prepares to recover from the coronavirus pandemic.
“The truth is that Covid-19 has changed United Airlines forever,” company CEO Scott Kirby said in a statement. “The passion, teamwork and perseverance that the United team showed in 2020 is exactly what will help us build a new United Airlines that is better, stronger and more profitable than ever before.”
The airline reported about $ 3.4 billion in operating revenue in the last three months of last year, up more than two-thirds from the same period in 2019. It ended the year with access to nearly $ 20 billion in cash or cash-equivalent funds, no federal incentive loans included.
Delta Air Lines last week reported a loss of $ 12.4 billion in 2020, calling the CEO ‘the most difficult year in Delta’s history’.
In anticipation of a recovery, United have resumed major maintenance and engine upgrades so that planes that are sidelined by weak demand will be ready as more people start flying again.
But the recovery is unlikely to come for some time. United said it expects to bring in about a third as much operating income in the first quarter of this year as during the same three months in 2019. Most analysts believe the airline industry will not fully recover from the pandemic for a few years.