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06 April 2021

US Considers Economic COVID-19 Roadmap

The end of the first quarter of 2021 marks the close of an eventful period for global equities, with short-squeezes, billion-dollar investment fund liquidations, and even a container ship wedged between the banks of the Suez Canal causing disruption across many markets. Risk-on sentiment appears to have returned this week, however, as global indices have posted strong performances across the board. By Thursday morning British Summer Time (BST), the Nasdaq rose +2.05%, the S&P500 +2.15%, and the Hang Seng Index by +2.17%.

Further Government spending and stimulus cheques have also been a hot topic for investors in the United States this quarter, as it was anticipated that this would aid a stronger US recovery while directing capital into the stock-market in the form of a US$1,600 ‘cost-free stock-market ticket’ that would end up in the accounts of budding retail investors. After announcing plans for a further US$2.25tn spending plan this week, it appears one round of US$1.9tn stimulus is not enough to spur a recovery up to the standards of Joe Biden. The proposition is an eight-year programme which is pledging US$620bn for transportation, US$580bn for strengthening American manufacturing and US$400bn to address improved care for the elderly and people with disabilities. Taking a closer look, the spending would be directed towards modernising roads, replacing rail cars and buses, improving veterans’ hospitals, upgrading affordable housing, expanding high-speed broadband, and providing incentives for manufacturing and technology research. Unfortunately for businesses and US citizens, the Democrats propose tax hikes that would offset the cost of the project over 15 years.

The idea is that the federal corporate tax rate would be raised from 21% to 28%, which according to the US Tax Foundation, would make the federal-state combined tax rate higher than every country in the OECD, the G7 and all other major trade partners and competitors, including China. It may therefore be a difficult job for the bill to pass Congress as corporate tax rates at that level would no doubt impact the United States’ economic competitiveness against global peers. A Politico report states the bill can only afford to lose three democratic votes in the house and zero in the Senate, which means there are a lot of politicians to please.

In the UK this week, the FTSE 100 was down -0.21% as of Thursday morning as the disappointment of Deliveroo’s initial public offering (IPO) seems to have diminished some hopes of encouraging fast-growing tech companies to list in the UK in the future. The IPO was labelled “the worst IPO in London’s history” by one banker as the share price fell 26% to the close on Wednesday, but investors have blamed short interest from hedge funds outside of the private funding rounds, poor timing and mis-pricing for the sharp decline in prices on the opening day. Nonetheless, the turbulent start for the company is not indicative of its future success, as both Ocado and Facebook are examples of IPOs that at first did not perform yet went on to succeed tremendously.

On a more positive note, Sumo Digital the Sheffield-based videogame developer, surprised investors in the Yorkshire company this week with impressive full-year results. The company released twelve videogames and even received two BAFTA wins for ‘Sackboy: A Big Adventure’ in 2020, which is a spin-off of its‘LittleBigPlanet’ series. The results were clearly warranted, with revenue growing from £49m in 2019 to £68.9m in 2020, an increase of 40%. The growth was split between 24% organic growth and 16% acquisitive growth. As a result of one acquisition, statutory profit before taxation reduced to £900,000 from £7.4m due to an amount of £7.3m paid on the acquisition of Pipeworks. The videogame developer has also acquired two other businesses since and opened two new studios in the UK and the US, increasing its total number of employees to 1043. Sumo Digital’s outlook for the coming years therefore looks rather promising, and with a number of acquisitions strengthening its workforce, the company will no doubt have more opportunities in the pipeline to deliver future growth.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
US Considers Economic COVID-19 Roadmap
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