Wealth Market Update

Wealth Market Update

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Quarterly Update: December 2020

The global economy has faced one of the most difficult years since the Great Depression of the 1930’s. Unprecedented increases in unemployment and dramatic falls in GDP growth spared no country around the world. In saying this, equity markets have been able to look through this period by pricing in the COVID-19 impacts as temporary. Relative to the economic impacts, equity markets have performed strongly from March 2020.

Whilst all major global markets have not beaten their highs from February (priced in Australian Dollars), there has been a significant rebound nonetheless especially in the Emerging Markets and US markets. In US Dollars, both of these equity indexes reached all-time highs during this period.

Cumulative Return of Major Share Markets - Quarter

Cumulative Return of Major Share Markets - 2020

Over the last quarter as the year 2020 came to a close, the ASX 200 increased 7.95%. This was followed by Emerging Markets finishing up 7.18%, Europe also gained 5.4% and the United States was slightly positive with 1.1%, all priced in Australian Dollars1.

1 Reuters 2021


ForEx Markets

ForEx Markets

The Australian Dollar continued its rise into the close of the 2020, increasing 11.75% on the year. This was aided by the continued fall of the United States Dollar Index, which is a basket of currencies (predominately 57.6% Euro, 13.6% Japanese Yen, 12% Pound Sterling and other smaller currencies)2.

The US Dollar is approaching 4 year lows and could accelerate towards the downside if this low is surpassed, as it is a key technical level. The fundamental backdrop of continued large stimulus, potentially exacerbated with the typical thought of Democrats willingness to spend more than Republicans, may be bearish for the US Dollar going forward into 2021. However, if global economic conditions do not improve and deteriorate, the Dollar is perceived as a safe-haven (as seen in March 2020) and would be sought after to safeguard against global risks.

Foreign Exchange USD - 2020

2 Reuters 2021


US Election

US Election

The United States have formally certified Joe Biden as the next United States president and will officially take up office on the 20th of January 2020. The Democratic Party will have control over Congress and The Senate as both Republican senators were beaten in the Georgian run-off elections on the 5th of January. Having both houses will mean they will have the ability to implement the full extent of their agenda with little resistance.

Under a Biden administration, an increase in stimulus would be expected. Stimulus in the form of infrastructure spending, spending associated to green technologies and payments in the form of direct payments to the public are expected. This is likely to be seen as favourable to markets, whilst also potentially pressuring yields to increase due to government deficits increasing further.

The other major global elections that are occurring this year are Hong Kong, Russia and Germany which are set for September 2021.


COVID Vaccine

COVID Vaccine

Various COVID-19 vaccines have been rolled out across the world. The European Union has started the first cycle of the BioNTech-Pfizer vaccine with priorities on high-risk groups as only a limited number of vaccines are available in the early stages. It is expected that mass vaccinations will begin in March/April of 2021, however these timelines have potential to change.

Vaccine by Countries

The United States and Canada have also started to administer the BioNTech-Pfizer vaccine as well as approving the vaccine produced by Moderna. Areas of South America, India and Russia have also started to use various vaccines, namely the Sputnik V vaccine. China has five vaccines being used and was the earliest country to begin vaccinating the public starting in November of 2020. Australia is still yet to begin vaccinating the public but is expected to begin as early as February. The use of both the BioNTech-Pfizer and AstraZeneca vaccine will take place in Australia. As the BioNTech-Pfizer vaccine is being manufactured overseas, the greater public is likely to receive the AstraZeneca vaccine due to the ability to create it domestically.

Questions as to whether the vaccines will be effective in curbing Coronavirus are still in question as the virus mutates. Scientists say about 70% of a country’s population needs to be vaccinated for a return to normalcy to take place. As many areas of the world including Europe, the United Kingdom and Unites States begin their third lockdown, the need for a solution lays with the effective roll-out of vaccines. The risk with not having an effective roll-out might have far-reaching impacts which could in turn hurt market confidence.


2021 Outlook

2021 Outlook

The 2021 outlook remains similar to 2020 in regards to the level of uncertainty within markets and economies. With mass vaccinations being the main theme from a health perspective, markets have priced in a strong recovery with an assumption of a return to normal functioning economies. If setbacks occur in regard to the efficacy of vaccines or the inability to vaccinate a large enough number of the world’s population to positively reduce the spread of the virus, markets will have to adjust to this reality. However, with the willingness of governments and central banks to inject stimulus into economies, it is hard to imagine a market event as significant as March 2020 to take place again without there being other catalysts at play.

In the event of a return to normalcy, we expect value to outperform growth as beaten down cyclical sectors such as energy and consumer discretionary will again have a more significant role to play.

If vaccine setbacks occur and there are no major improvements in curbing the spread of the virus, growth sectors such as technology, that do not rely on healthy economies, will see inflows as a safety-trade. This is what was seen throughout 2020.

Precious metals had a significant run throughout 2020 as they adjusted to the extreme expansion of government and central bank balance sheets. We would see this trend remain if governments are as willing to continue this trend into 2021. A reopening of economies, increasing government bond yields and risk-on sentiment remain the largest risk for precious metals. If the US Federal Reserve continues its asset purchases, precious metals may continue with their upward trend.

The US Dollar has been in a large downward trajectory over the past year, for the two main reasons that the US has been in both political and economic uncertainty. Given the new Biden administration removing political tensions and the potential of an improving economy we could see a bounce in the US Dollar.

The potential of an infrastructure spending policy adopted in the US by the Biden administration, could also see the demand for Australian iron ore increase. This could be a positive for the Australian economy in reducing our reliance on China.

Investors would have also seen over the course of the last few months the price of cryptocurrencies skyrocketing, particularly Bitcoin (currently priced at AUD $50,816 a coin3). This price movement has mostly been related to institutional money flowing into cryptocurrency, beyond the typical retail investor. Interestingly, China is working on their own digital currency that they would like to roll out to challenge the power the US holds with its own currency4. We still believe cryptocurrencies to be a very risky and volatile. Cryptocurrencies are yet to infiltrate normal markets and still have a very long road ahead of them.

In summary we see markets continuing their upward trajectory but do have worries around global recoveries if the vaccine is not rolled out fast enough. If the Biden administration continues its stimulus policy this will continue to be positive for markets.

3 BTC Markets, https://www.btcmarkets.net/ 15/01/2021
4 The Economist, https://www.economist.com/finance-and-economics/2020/04/23/china-aims-to-launch-the-worlds-first-official-digital-currency 15/01/2021
General Advice Warning
This update is issued by Ventura Investment Management Limited (AFSL 253045), which is a related body corporate of Centrepoint Alliance Limited.
The information provided is general advice only and does not take into account your financial circumstances, needs or objectives. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement for the relevant product before you make any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. It is imperative that you seek advice from a registered professional financial adviser before making any investment decisions.
For more information, refer to the Financial Services Guide (FSG) for Ventura Investment Management Limited (available at https://venturafm.com.au/media/1729/ventura-fsg-update-nov.pdf).
Disclaimer
The information provided in this communication has been issued by Centrepoint Alliance Ltd and Ventura Investment Management Limited (AFSL 253045).
The information provided is general advice only has not taken into account your financial circumstances, needs or objectives. This publication should be viewed as an additional resource, not as your sole source of information. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure for the relevant product before you make any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. It is imperative that you seek advice from a registered professional financial adviser before making any investment decisions.
© Copyright 2018 - 2019 Centrepoint Alliance Ltd. All rights reserved. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Centrepoint Alliance Ltd nor its related entities, guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution.
For more information, refer to the Financial Services Guide (FSG) for Ventura Investment Management Limited (available at https://venturafm.com.au/media/1729/ventura-fsg-update-nov.pdf).

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