HEALTH and the economy are fields which have seldom crossed over, until recently. The health crisis of the last year may well entangle these areas in a way that could prove helpful to the prospects of both.
Why does this matter to an investor? Well, we know that what is good for the long-term outlook for the global economy tends to be good for investors holding a diversified basket of capital markets assets.
In reality, our understanding of how our health drives economic outcomes has been building for the last few centuries. Let’s think about the economic growth surge enjoyed since the early 1800s. Fundamentally, this was down to the power of the human engine as a stronger, fitter and smarter workforce.
Robert Fogel, the Nobel Prize-winning economic historian and scientist, observed that: “The combined effect of increase in dietary energy available for work, and of the increased human efficiency in transforming dietary energy into work output, appears to account for about 50 per cent of British economic growth since 1790.”
Other commentators have noted that the effects of a better-fed population stretch beyond the physical, stating for example, “Malnourished children score poorly on tests of cognitive function, have poorer psychomotor development and fine motor skills, have lower activity levels, interact less frequently with their environments and fail to acquire skills at normal rates.”
This insight has even been applied to explain a surge in innovation in the mid-late 1700s, which has been put down to the bountiful harvests of the 1730s. Well-fed inventors were suddenly fuelled to come up with some revolutionary ideas!
The potential application of this thesis to our plight today should be familiar. The starting point is the realisation that humankind is one of the planet’s most precious resources. At the heart of this is our collective capacity to find efficiency – to invent new stuff and get better at using that new stuff.
We must make the most of that precious resource, by ensuring that quality healthcare, nutrition and education is as widely shared as possible – resulting in genius (innovation and efficiency) being evenly distributed, so it does not cluster in the already rich or indeed any particular country, colour or creed.
This entangling of health and the economy may shift future spending priorities. The cost-benefit calculation of vaccine development has surely already changed. Some are already speculating that a surge in life expectancy may result from the wider application of the messenger RNA vaccine technology trialled in this crisis.
Of course, this pandemic is far from over. Infection rates in the developed world have thankfully fallen a long way from January peaks. However, case counts are currently surging in some emerging markets such as Brazil and India. In the context of a pathogen that has no respect for national borders, the target of global herd immunity is the one that really matters and it appears to still be relatively distant. Until then, the unsettling reality is that the partially-vaccinated pockets of the wider world will continue to provide fertile ground for the emergence of variants.
Returning to the perspective of markets and investments, much of the incoming positive news on the economy has long since been incorporated into prices. However, as usual, we would point out that the reason to buy a diversified fund or portfolio is never the economic outlook for the immediate 6 – 12 months. Near-term opportunities can only provide little performance cherries here and there, and only if skilfully plucked by professionals who know what they’re doing.
It is whatever lies beyond the short term that should be of interest to the diversified investor. If this crisis shifts our priorities, then the longer-term future could be a little brighter. The old adage that our health is our wealth could come to bear renewed meaning.
:: Cahir Gilheaney is a wealth manager with the Barclays Wealth & Investment Management team in Belfast.
