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In a media interview last week, US Treasury Secretary Janet Yellen commented that interest rates might need to rise a little in the future to ensure America's economy does not overheat.
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Her comments were interpreted by investors as a move by the Biden administration to predict or suggest a rate hike, and jolted US stocks that day.
Perhaps Yellen forget that she is no longer the chairman of the US Federal Reserve and therefore should not be weighing in on the question of interest rates.
And perhaps investors forgot that Joe Biden won the US presidential elections on the promise that he would rule America by the book, while criticizing Donald Trump's unruliness when he was president. So at the moment, Biden's government can ill afford to undermine the independence of the Fed, which means investors seem to be overly sensitive.
Soon afterwards, Yellen made it clear that she had no intention of influencing Fed policy, and the latest US employment data showed that the US economy was still not in danger of overheating, so the US stock market quickly stabilized and recovered, and the Dow and S&P 500 continued to hit new highs.
But though we are nearly halfway through 2021, the pace of global economic recovery seems to be lagging behind expectations. The optimism is that central banks do not have a strong excuse to tighten monetary policy but at the same time, as there is inconsistency among countries in terms of vaccination rates and coverage, there will be a further delay in the time line for the resumption of normal trade and travel between countries.
Thus, the global economy may recover more slowly than many had expected.
Over the next two years, the global economy is likely to rely heavily on two drivers: domestic consumption, and infrastructure and investment by governments.
Let's talk about domestic consumption first.
As the world has begun to learn how to deal with the pandemic, it is believed that most countries will no longer keep their populations grounded and restrictions will be eased. So, unless there is a large-scale outbreak like the one being witnessed in India, local consumption in these countries will continue to rebound.
In fact, in countries which have successfully put a lid on the pandemic such as China, or those which have significantly controlled the outbreak such as the United States and Britain, there has been an upsurge in domestic consumption, giving an impetus to their economies.
Moreover, since overseas travel has not yet recovered, a lot of purchasing and consumption power have been released domestically in many countries, and this has become one of driving forces for the GDP of these countries this year.
Meanwhile, government investment and infrastructure is likely to be the biggest source of economic growth around the world and especially in Europe and the United States, over the next five years.
The Biden administration has proposed a US$2.3 trillion infrastructure plan and if this is spread evenly over the next eight years, it will amount to one percent of annual GDP, further boosting America's economic recovery.
Therefore, unlike Warren Buffett's strategy, airline stocks should not be the goal for the short term since international air travel will not return to normal in the near future.
As oil prices continue to rebound, airline stocks should absolutely be avoided, but consumer and resource stocks, which will be driven by global economic patterns over the next two years, stand to benefit and are worthy of attention.
Andrew Wong is chairman and CEO of Anli Securities
