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Market Wrap December 2020

Vaccine hopes surged

  • Global shares rose 7.7% and 12.2% in hedged and unhedged terms, respectively. Global equities were led on the upside by European equities with the German market up 15% and the French rising 20.1%, both in local currency terms. Positive vaccine trial results from the likes of Moderna and Pfizer were the major catalysts promising a closer end to the coronavirus pandemic.
  • Emerging markets rose 5.9% during November in Australian Dollar (AUD) terms lagging developed markets. This was due in part to underperformance by index heavyweight Alibaba which withdrew the planned listing of its subsidiary Ant Financial after a fierce regulatory backlash.
  • Australian shares outperformed global shares rising 10.2% in November. The market was led by strength from the energy (up 28.4%) and financial (up 15.2%) sectors. Energy stocks rose investors anticipated economic recovery (and higher oil prices) on vaccine news.
  • The Australian dollar (AUD) bounced back sharply rising 3.4% against major currencies and 4.5% against the US dollar.
  • Fixed income returns were flat domestically but positive internationally. Despite support from the RBA rate cut domestically this was more than swamped by the surge in “risk on” sentiment which benefited non-government bonds (that carry the risk of bankruptcy). The Australian market is dominated by government bonds more so than the global bond market. This helped explain the relatively weak returns in the month.

As trials deliver promising results

Globally

  • The second wave of coronavirus cases in Europe and the US appears to be abating with case growth falling from peak levels in recent weeks.
  • President Trump appears ready to allow an orderly transition to President elect Joe Biden, countering fears of a prolonged election battle with the Trump campaign failing to successfully contest the election.

Locally

  • The RBA cut interest rates by 0.15% to a new low of 0.1% in part to reduce pressure on the AUD. This effort was thwarted by vaccine trial success that stoked optimism over stronger global growth and demand for Australian resources.
  • Geopolitical tensions with China intensified following an airing of grievances against Australia and punitive tariffs on Australian wine exports, hurting businesses such as Penfolds producer, Treasury Wine Estates.
  • Business surveys pointed to a bounce back in economic activity overall as Melbourne exited lockdown restrictions.

Major asset class performance

Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian shares 10.2% -2.0% 9.1%
Global shares (hedged) 12.2% 10.0% 10.3%
Global shares (unhedged) 7.7% 5.6% 10.6%
Global small companies (unhedged) 11.2% 3.8% 9.5%
Global emerging markets (unhedged) 5.9% 10.6% 10.7%
Global listed property (hedged)
11.7% -16.1% 2.5%
Cash 0.0% 0.4% 1.6%
Australian fixed income -0.1% 3.0% 4.7%
International fixed income 0.5% 4.5% 4.45%
Source: Bloomberg & IOOF, 30 November 2020
Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD
Please note: Past performance is not indicative of future performance.

Currency markets

Exchange rates At close on 30/11 1 month change % 1 year change %
USD/AUD 0.73 4.5% 8.6%
Euro/AUD 0.62 2.0% 0.3%
Yen/AUD 76.6 4.1% 3.5%
Trade weighted index 61.5 3.4% 4.2%
Source: Bloomberg & IOOF, 30 November 2020. All foreign exchange rates are rounded to two decimal places where appropriate.
Please note: Past performance is not indicative of future performance.

Disclaimer:This report has been prepared by the IOOF Research team for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. RI Advice Group Pty Ltd is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of RI Advice Group Pty Ltd. This report may be used on the express condition that you have obtained a copy of the RI Advice Group Pty Ltd Financial Services Guide (FSG) from the website. RI Advice Group Pty Ltd and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report, or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of RI Advice Group Pty. RI Advice Group Pty and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither RI Advice Group Pty nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law RI Advice Group Pty, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report. General Advice Disclaimer: The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance.
For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process.

Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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