Market Update

The month of December saw positive returns across most asset classes, most notably in equity markets. This strong performance resulted from several positive political events, in particular in the form of government stimulus. Despite the commencement of COVID-19 vaccinations, case numbers continued to climb rapidly in many countries. As a result, new restrictions were imposed to curtail the spread of COVID-19 in the UK, Europe and parts of Asia.

In Australia, concerns about the growing number of COVID-19 cases in Sydney and Melbourne resulted in many states and territories tightening border and social distancing restrictions. However, positive local economic data released in December indicated rising consumer and business confidence, accelerating real estate prices and robust growth in building approvals.

In the US, Congress delivered another round of fiscal stimulus in the form of a pandemic relief plan that extended many of the measures in the original Coronavirus Aid, Relief and Economic Security (CARES) Act, including renewing direct household payments and further unemployment benefits. In addition, the US Federal Reserve reinforced that it will maintain quantitative easing (QE) for as long as necessary to ensure sustained economic recovery. These positive developments outweighed the worsening impact of COVID-19 during the month of December.

In Europe, a post-Brexit trade deal was finally reached between the UK and EU, ending years of political negotiations. Another positive development was the approval, by EU leaders, of the landmark €1.8 trillion budget package, including the €750 billion recovery fund. Against this backdrop, rising COVID-19 infections in December saw many European countries further tighten restrictions.

The investment returns of the major markets for one month, one quarter, financial year to date, and one year to 31 December 2020 are summarised below.

Market Performance – 31 December 2020

Month

Quarter

FYTD

1YR

Australian Equities

1.3%

13.8%

13.7%

1.7%

Overseas Equities (Hedged into AUD)

3.5%

11.8%

19.2%

11.2%

Overseas Equities (Unhedged into AUD)

-0.5%

5.8%

9.9%

6.3%

Emerging Markets (Unhedged into AUD)

2.6%

11.3%

17.2%

8.1%

Australian Property (Unlisted)

0.5%

1.2%

1.7%

-3.7%

Australian Property (Listed)

0.6%

13.2%

21.6%

-4.0%

Global Listed Property (Hedged into AUD)

2.6%

10.8%

11.8%

-12.9%

Australian Bonds

-0.3%

-0.1%

0.9%

4.5%

Overseas Bonds (Hedged into AUD)

0.3%

0.8%

1.5%

5.1%

Cash

0.0%

0.0%

0.0%

0.4%

Australian Dollar vs. US Dollar

4.7%

7.7%

12.1%

9.8%

Source – JANA, FactSet

The Australian equities market (S&P/ASX 300 Index) rose 1.3% in December, with mixed performance across sectors. Utilities (-5.4%) and Healthcare (-4.7%) were the key detractors. The top performing sector was Materials (+8.8%), which was driven by higher commodities prices. IT (+8.6%) was another strong contributor driven by the price momentum of stocks such as Afterpay and Xero. Mid-Caps (3.4%) and Small Caps (2.8%) outperformed both Large Caps (0.7%) and the broader Index (1.3%). Australian REITs (0.6%) underperformed both the broad equity market and Global REITs (2.6%).

The MSCI World Index ex-Australia (hedged into AUD) rose 3.5% during December. In developed markets, Austria (10.0%) and Greece (8.1%) outperformed the broader market, while New Zealand (-2.5%) and Sweden (-0.9%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 2.6%, outperforming unhedged developed markets (-0.5%). Unhedged returns were significantly lower than hedged returns due to the appreciation of the AUD over the month.

Movements in major bond markets were mixed over the month, with negative returns for Australian bonds and positive returns for overseas bonds.

The Australian Dollar appreciated against the four major currencies over the month, including an increase of 4.7% against the US Dollar.

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