Here is our take on the articles summarized below: 
The coronavirus pandemic has dramatically shifted the trajectory of the global economy, highlighting several trends that were already present before the pandemic such as digitalization, and corporate consolidation (especially in big tech). New opportunities for economic growth have emerged alongside new challenges and risks. However, key institutions, such as central banks, will have to be careful to weigh options for economic recovery against underlying economic fundamentals which paint a much more grim picture than the soaring stock markets.

Digital Disruption: risks and opportunities in the shift to online 

Economist Intelligence Unit 
Read the full article here

The coronavirus pandemic and its resulting lockdowns have accelerated the pace of digitalization across many sectors, disrupting markets around the globe. With this comes great opportunities as well as new risks. Opportunities have emerged especially in the online retail, digital finance, remote working, and telehealth spaces. This year, online retail sales increased by more than 30% in the world’s 60 largest economies. Next year, The Economist research team expects further growth of 18% in online sales. Digital payments are expected to surge as customers and sellers seek to avoid cash and cards, central banks launch digital currencies, and interbank payment services are developed. The pandemic has propelled the shift to remote work which affects everything from customer management to recruitment. In response to the shift, manufacturing companies are pushing up the digitalization of supply chain management and product design. The popularity and need for telehealth are soaring. Medicare went from reimbursing 11,000 virtual visits a week pre-pandemic to reimbursing 1.3 million virtual visits per week during the March-May lockdowns. Further opportunities are presenting themselves in education, as more students move to digital learning which, especially in higher education, is usually lower cost. The data market, as well as online entertainment and gaming, has also experienced massive growth this year. 

Companies will also have to navigate the new risks that come with the rapid acceleration of digitalization. The sudden surge in digital demand has overwhelmed telecoms infrastructure, creating the need for a more comprehensive network which only 5G can provide. About 47% of the 60 markets analyzed will be rolling out a 5G network by the end of 2020, with the remaining countries hoping to launch 5G by the end of 2021. However, the expansion into 5G has been hampered by rising tensions between the US and China. Many countries have been forced to abandon the 5G infrastructure provided by China’s Huawei which is often cheaper than its competitors, like Samsung, Nokia, and Ericsson. However, poorer countries will need cheaper alternatives to maintaining network speeds. Another challenge for e-commerce will be digital taxes. Governments are attempting to save domestic brick and mortar companies by cracking down on e-commerce giants like Amazon and Flipkart of India. Along the same lines, governments are determining how they will regulate the big tech companies that are expanding into fintech and healthcare. Finally, an acceleration in cyberattacks has been brought on by the acceleration in digitalization, forcing companies and governments to invest more in cybersecurity. Despite the risks, the digital economy is expected to be one of the primary drivers of the global recovery.  

What Can Go Wrong? Investors’ Views on the Big Risks to Markets in 2021

Katie Martin, Laurence Fletcher, and Eric Platt; Financial TimesRead the full article here

As markets have implicitly and explicitly expressed cautious optimism for 2021, fund managers have outlined several key risks to that outlook. Howard Marks of Oaktree Capital Management sees rising interest rates as the primary risk to equity prices, although the Fed’s stated goals for inflation indicate this is a low-probability scenario (see below). Valentijn van Nieuwenhuijzen of NNIP highlights the risks of a collective benign outlook. Sam Finkelstein of Goldman Sachs sees low yields and the possibility of a negative growth shock threatening income investing. Vincent Mortier of Amundi warns against blind faith in the vaccine and a swift return to normalcy, citing the production and distribution challenges the vaccine creates. Andrew Law of Hedge Fund Caxton Associates sees reflation as a game-changer for asset allocations conditioned to disinflation or low inflation. Liz Ann Sonders of Charles Schwab states that an overly optimistic sentiment has made the markets more vulnerable to a significant downturn. Scott Minerd of Guggenheim Partners sees the socialization of credit risk and a growing debt as troubling. Gregory Peters of PGIM is of the opinion that inflation will increase only temporarily, but should it continue to move upward he worries about whether the Fed will hold its nerve with low interest rates. Danny Yong of Hedge Fund Dymon Asia has concerns about a dollar crash coupled with a potentially ineffective Federal Reserve. Paul McNamara of GAM comments that emerging market debt servicing is not as cheap as developed markets, risking a debt spiral. As all these and more factors continue to shape the markets moving into 2021, investors should be cautious as they weigh a potential recovery against the underlying economic fundamentals.

Has the Fed Rewritten the Laws of Investing? and The Year the Fed Changed Forever

Justin Lahart, Wall Street Journal; Jeanna Smialek, New York Times
Read the articles here and here

As equities have reached historically high valuations this year, investors are wondering whether the Fed has fundamentally altered the market environment as it takes aggressive action against the pandemic’s economic fallout. Not only did the Fed unleash the full extent of its 2008 arsenal within two weeks of the coronavirus crash, but it also unveiled never-before-seen tools to mitigate the damage, including small business lending and corporate debt purchases. For a traditionally apolitical institution, the central bank has made a number of significant decisions as it prioritizes job growth, including balancing Main Street and Wall Street lending programs, prioritizing climate change issues, and addressing economic inequality. As the Fed has kept interest rates near zero in hopes of bringing inflation to its target of 2%, analysts have noted that the low yields on 10-year Treasuries may sustain higher valuations than traditionally forecasted; whereas in the past low yields signaled the Fed’s desire to keep growth and inflation low (thereby undercutting earnings growth), the Fed is presently depressing rates in order to stimulate job growth and inflation. However, one must always be cautious when assessing a shifting economic landscape – you never know when the ground may disappear from under your feet, as was the case with the “Nifty Fifty” group of large companies in the early 1970s. Still, as the Fed’s self-perception and role evolve in the aftermath of the pandemic, investors should pay careful attention to the playing field. The Fed has become more important than ever in shaping the trajectory of the economy.

Corporate America experiences ‘K-Shaped’ recovery 

Andrew Edgecliffe-Johnson, Financial Times
Read the full article here

Many of the larger, most recognized brands got bigger in 2020 while their smaller competitors were snuffed out by the pandemic. Economists are concerned that this unequal “K-shaped” recovery is dividing the wider US economy and deepening the gap between the largest, best-financed companies and those with weak balance sheets and brands – a trend that had already been developing pre-pandemic. Some argue that new central bank policies and a shift in consumer behavior are only enhancing these trends, putting more wealth into the hands of the larger companies: “The Fed and the Treasury are used to helping big companies like big automakers and big banks. They’re not used to dealing with smaller companies. The big lesson there is it doesn’t trickle down.” Such trends threaten to reduce competition, stifling innovation, and preventing the growth of smaller businesses which are engines for job creation and economic dynamism. Not surprisingly, the winners of this year had easier access to capital and had typically invested more in digital tools pre-pandemic, which well-positioned them to face the rise in online retail.