I don’t know if I have ever experienced such a strange year. Perhaps that is a common sentiment. However, I refer less to the lockdown—after all, my family lives in the countryside; in some respects, lockdown has been a wonderful experience. Nor do I refer about work so much. We were able to keep in touch with each other through technology and socially distanced face-to-face meetings. Through the same use of video conference calls, we were able to maintain contact with companies, both familiar and new. We were able to adapt—we were given lemons and we made lemonade. In many respects, performance of the portfolios has been excellent; so it is hard to see how the environment disadvantaged our investors. Nevertheless, our investment team are all to be congratulated by the way they responded to the environment and continued to make decisions on behalf of investors.

No, none of that has been too strange. But the markets themselves? There, I do pause for thought. Given the set of circumstances we have faced—political, economic and emotional—I would not have expected markets to do so well. So, why have they?

Perhaps we need to go back to the beginning. Our first reaction to the virus was one of optimism. China had faced things like this before and had dealt with them. In the past, such episodes had little long-term effect on the markets. This turned out, in hindsight, to be more or less true for the current virus, but only for China, which reacted in a way largely consistent with previous outbreaks. For the rest of the world, however, it didn’t start out that way. The economic effects of the lockdown hit hard on expectations of current sales and profits. Only in the virtual world were businesses somewhat protected from the worst, as people could transact with total physical distance.

The virus spread far wider than previous outbreaks and the economic effects were deeper and longer-lasting than we ever suspected. And yet, the idea that this was a temporary disruption to the general trend of economic and human progress has never really gone away. Markets were able to see through the near term and still believe in a “normal” future. So, when the dampening effects of weak current economic activity and raised household savings caused bond yields to fall across much of the world outside of China, valuations soared. After all, if you are able to discount a normal future at abnormally low interest rates, then price-to-earnings ratios should be much higher. So, the equity market saw a positive future while bond yields were suppressed by low demand for goods and the persistent lack of demand for new investment that has been a commonplace of recent years.