The two main themes for global markets for the second quarter of 2021 are inflation and Covid-19.

It has been over a year since the pandemic forced the global economy into a lockdown, and despite the rollout of vaccines, we are still not out of the woods.

Most countries have imposed travel restrictions. Sectors such as tourism and travel, as well as entertainment venues such as restaurants, cinemas and sporting events still remain largely closed.

The limited availability of the vaccine is setting the stage for a divergent economic and health outlook for countries that have access to vaccines, and for those that don't.

For example, 39 per cent of the population in the United States has received at least one vaccine dose while 24pc have been fully vaccinated while 47.8pc have received one dose of the vaccine in the United Kingdom.

Around 16.4pc of the population has been vaccinated in the European Union (EU), 12 pc in China and 13.5pc in Turkey.

In comparison, less than 10pc of the population has been vaccinated in India and Indonesia, which have inoculated 7.1pc and 3.8pc of their populations, respectively.

The third wave of the pandemic is now rearing its head. Global case counts are rising once again, and this time the rise in cases is being driven by emerging markets such as Brazil, Turkey and India.

Hence the race between the vaccine and the virus has become more important.

The virus has now shifted from the US and the UK — epicentres of the first and second waves — to emerging markets.

This means that markets such as the US, the UK and China could continue to outperform the EU and emerging markets in Asia and South America.

The second major theme which markets are focusing on these days is the potential for an inflationary cycle.

The data is already showing a rise in pricing pressure.

In the US, the consumer price index (CPI) for March came in at 2.6pc — the highest level since August 2018. This is further expected to increase as the US economy opens up. Salman Ahmed of Fidelity has published a very insightful report on this topic.

The main issue is that global central banks have lost the option of using monetary policy tools to control inflation.

The US has pumped in $8.6 trillion, including through the recently announced Build America Back infrastructure spending plan.

Other economies such as the EU and the UK have done similar spending which has led to record levels of sovereign debt. This would force these countries to keep interest rates low for a much longer period in order to avoid any negative economic shock.

This outlook for low-interest rates and high fiscal spending is creating fears of an inflation cycle.

Inflation should be positive for equities and this might explain the prevailing record-high equity valuations. The asset allocation shift from bonds to equities has only just started.

Another outcome from these inflationary fears is the rally in bitcoin prices.

Coinbase's successful IPO in the US and its market cap of more than $85bn is perhaps the third big theme in the markets.

Coinbase is now larger than all the global exchanges such as CBOE, ICE (owns NYSE) and Nasdaq. It is larger than the total market cap of all the companies listed in Pakistan despite the company being less than ten years old.

On the back of this IPO, Bitcoin price also touched another record high, though it later corrected due to speculation about new regulations in the US. The cryptoeconomy is now greater than $2 trillion.

Even though investment in bitcoin and crypto is still disallowed by the central bank in Pakistan, it seems that the ban has no bite.

Similarweb data for the most downloaded fintech apps in Pakistan now has Binance at number six. Many other crypto companies are also on the list, including OctFX as the third most downloaded fintech app in Pakistan.

Read: Bitcoin mining — a solution to Pakistan's new energy problem?

According to information from crypto experts, more than 500,000 Pakistanis are using these platforms — which is far greater than the number of Pakistanis who invest in stocks through regulated platforms. It seems it is better to be unregulated.

As we have argued before, we think regulators should work on a regime so that Pakistani savers can invest in this asset class in a regulated and protected way rather than through unregulated platforms which provide little or no customer protection.

Traditionally, gold has been the hedge for inflation but now it seems that Bitcoin has replaced that as "digital gold", which has a negative correlation with the US dollar.

However, we think gold is still a decent hedge and should be a part of investment portfolios.

Ali Farid Khwaja, CFA, is the Chairman of KASB Securities. He lives in London with his wife and two daughters. He has worked in financial markets in the UK and Europe for over 17 years. He is an alumnus of Lums and was a Rhodes Scholar at University of Oxford.