Welcome to 2021! I hope you had relaxing break and found time to reset after a tumultuous year. As we enter 2021 it seems that it’s more of the same. COVID-19, US elections (and inaugurations) and growing tensions between Australia and China continue to dominate the news headlines.
Late last year we adjusted our asset allocation position taking a more positive view on equities relative to fixed income assets and cash. Our rationale for taking this view was based primarily on the belief that monetary policy will remain supportive for risk assets (i.e. interest rates will remain low), coupled with the likelihood of continued fiscal support by governments around the world and growing evidence of an economic recovery.
So, what are the numbers telling us thus far? Despite the doom and gloom in the news, US business in the US appears to be recovering despite softening payrolls (the number of US workers). Economic indicators such as the US ISM Manufacturing and Services Index are improving. Chinese business activity remains relatively strong and emerging markets are generally showing signs of economic strength. On the domestic front, jobs data has continued to improve, housing approvals are up more than 30% since June 2020 and exports are rising, dominated by Australia’s iron ore exports.
We are certainly not out of the woods yet and risks remain. COVID-19 and geopolitical risks can generate spikes in market volatility, but such events are out of our control. As per Lonsec’s investment process, we remain focused on the relative price of assets, policy settings and liquidity and other factors such as investment sentiment and the direction of shorter-term price momentum of assets. The risk of inflation is something we will continue to monitor in 2021 given the massive amount of economic stimulus we have witnessed.
I wish everyone a healthy and prosperous 2021.
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