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2020 was full of surprises and challenges as COVID-19 reared its head. Markets and economies took a massive hit, but what will the new year bring?
There’s no doubt 2020 was full of surprises and challenges as COVID-19 reared its head – quickly escalating, forcing severe lockdowns and prompting massive government stimulus measures globally. We know markets and economies took a massive hit in 2020, but what will the new year bring?
In a recent report released by global investment experts, Russell Investments, they share their market outlook findings, watchpoints and things to consider as we leap into 2021.
What’s in store for Australia?
For Australia, Russell Investments reported that we’re coming out of a short but very sharp recession and are in the beginning of the recovery phase.
Our recovery is underway with Gross Domestic Product (GDP) in Q3 reported slightly above expectations as household consumption continues to rebound following the lockdown. And, this is expected to continue in 2021.
Also, with a vaccine being rolled out and a possible reassumption of international travel in late 2021, Australia’s economy is poised to benefit through our tourism and education industries, which both make up close to 15 per cent of our exports.
“While markets have priced in a fair amount of the good news on the vaccine, more gains seem possible in 2021 as corporate profits rebound and central banks remain on hold,” said Andrew Pease, global head of investment strategy at Russell Investments.
In terms of the policy, the Australian Government is focused on maintaining its deficit spending until the unemployment rate is below six per cent, which is unlikely to occur in 2021. While the RBA is expected to keep the cash rate at 0.1 per cent and is likely to increase purchasing long-term government bonds. This is hoped to keep the Australian Government bond yields closer to the US, and as a result, take some upward pressure off the Australian dollar.
Key watchpoints for markets
In their report, they highlight several things to watch out for and expect to happen in 2021:
Australian equities should outperform Australian bonds
For the equity market, a rotation towards those more cyclical parts of the market that are cheap is expected
Banks and Real Estate Investment Trusts (REITs) are predicted to outperform at the expense of more defensive consumer and healthcare stocks, which have benefitted from COVID-19
The Australian Prudential Regulation Authority’s (APRA) easing of dividend restrictions for the banks should provide additional tailwinds for investors over the next 12 months
We’re likely to see a search for yield given the RBA (plus other central banks) keeping interest rates close to zero and maintaining various forms of quantitative easing
Also, our diplomatic relationship with China is another watchpoint as we go into the new year. We know it has clearly deteriorated, and this has led to several Australian exports (eg. wine, barley) facing increased tariffs and duties.
Even though the relationship is strained, Russell Investments says, “it’s unlikely to escalate to goods that will significantly impact the outlook for our economy.”
They are however closely watching any decision by the Australian Government to threaten a duty on iron ore exports, as this would offset the damage caused by China’s current tariffs in place.
Due to promising COVID-19 vaccine developments, overall, there is a moderately positive market outlook for the year ahead. There are also expectations that things should return to normal by the second half of 2021.
This is welcoming news as we leave the year behind and focus on our financial recovery and planning for 2021 and beyond.
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
