Value Investment Partners Market Report

December 2020

The Australian equity market continued to rally back in the final quarter of the year, returning a 9.4% uptick and finishing the calendar year at -2.0%. The rally this past quarter was predominantly driven by positive COVID-19 vaccine news, with two companies announcing effective vaccines that provide investors with growing optimism that the pandemic is nearing a close and that the economy will continue to further reopen. The companies and their respective sectors that were particularly affected during the climax of the pandemic were responsible for the overwhelming uptick. Tourism surged back, with companies such as Webjet (30.33%) trumping the players in this sector. Furthermore, Financials (22.77%) and general Energy stocks (26.18%) received consumer tailwinds that saw increased rotation towards these companies this quarter, characterising a return to a pre-pandemic economy.

Housing markets on the year were surprisingly resilient, finishing the year strongly. After the announcements of lockdowns across the capital cities, forecasts of market growth off the back of a successful 2019 were replaced with expected fall in property values. However, all capital cities except for Melbourne who were affected by an extended lockdown, closed the year with gains across the property market led by Adelaide (5.77%) and Brisbane (4.51%). Despite Melbourne’s lagging growth, its property prices were up 1.32% over the last quarter reflecting an improving consumer confidence across the nation.

Similarly to the outlook for Australian equities, global equities saw a shift away from defensive stocks to businesses that thrive on a fully operating economy. This shift in market sentiment can be attributed to the COVID-19 vaccine results and the outcome of US elections. The vaccine developments were well received by investors globally, where areas such as the US, Eurozone and UK boasted considerable growth in more economically sensitive sectors such as financials and energy. There were also a range of packages approved across these nations, including a $900 billion stimulus package in the US, €1.8 trillion budget package in the Eurozone, and a Brexit trade deal between the EU and the UK.

Consistent with recent activity, the Reserve Bank of Australia (RBA) cut the official cash rate a further 15 basis points in November, ending the year at a historic low of 0.10%. The RBA has also announced a $100 billion quantitative easing program, roughly $80 billion being spent purchasing Australian Government bonds, and $20 billion purchasing state and territory government bonds. Despite hitting a low of $0.58US, the Australian dollar finished strongly at $0.77, rallying off the back of increasing iron ore prices, bond yields and a typically weak US dollar.

Sources Referred and Data Collected From: Bloomberg, Commbank, & RBA.