Diversified investors weather COVID-19 storm; macro investment outlook bright
Despite COVID, a recession and a 37% drop in the Australia S&P/ASX 200 stock market index between February and March 1, many commentators agree 2020 was not as bad for diversified investors as many had feared.
And the year ended with a bang. The S&P/ASX 300 index — comprising the ASX 200 plus 100 smaller-cap companies — gained almost 14% over the December quarter.
This pushed its return for the 2020 calendar year into positive territory, at +1.7%.
Among the reasons cited for the better-than-expected outcome in 2020 are:
- the federal government’s economic support package (most notably JobKeeper);
- debt forbearance schemes that saved borrowers from foreclosure;
- record-low cash rates, which have helped borrowers service their loans; and
- Australia’s handling of the pandemic, which resulted in fewer lockdowns than elsewhere.
Australian shares outperformed international shares in the December 2020 quarter, reversing the trend of the previous quarter.
Markets worldwide rallied hard in November following news of the positive results of the Covid vaccine phase-3 trials and the outcome of the US election.
Cyclical sectors and industries that had previously suffered relatively weak performance outperformed significantly, while technology stocks underperformed.
Heading deeper into 2021, there are reasons for optimism, including:
- the rollout of COVID vaccines worldwide, which may help developed countries reach herd immunity in the second half of the year
- untapped economic stimulus funding by governments worldwide and high saving rates, which may boost consumer confidence and potentially encourage consumer spending
- a more predictable and stable US administration led by Joe Biden.
That said, the Australian economy may experience some turbulence in the months ahead, including after March 28, when JobKeeper is scheduled to end.
However, the combination of improving global growth and low interest rates bodes well for growth assets generally this year. Time will tell.
If you have any questions or concerns about your finances, or would like some advice or a second opinion, call us on 1300 888 803 or book a catch-up with a Modoras Professional.