Markets finished up January relatively flat on a global and domestic level as markets were spooked following the targeted trading by a cohort of retail traders of stocks that were heavily shorted by hedge funds such as GameStop which reached record highs. This created a so called ‘short squeeze’ which resulted in hedge funds holding the targeted stocks to cover their short positions by selling other investments, which contributed to volatility in markets.
On the policy front rates remain at low levels and the most recent decision by the RBA to keep rates at historical low levels remains positive for risk assets as investors have no other option but to take on risk to have any chance of generating a positive real return. Fiscal policy also remains supportive with the key focal point being the US where markets are closely watching to see if the Biden government will be able to push through their $US 1.9 trillion (almost 10% of GDP) stimulus package.
Our overall asset allocation positioning remains positive on risk assets including Emerging Markets which are leveraged to an economic recovery. However, we believe that from an investment selection perspective diversification remain important and we continue to retain our exposure to some defensive sectors within our Equities exposure. I wish everyone a healthy and prosperous 2021.