Market Summary | April 2021

MARKET OVERVIEW

Global Covid-19 cases continue to rise with over 150 million cases reported at the start of May, but the race is now on to vaccinate key demographics. The International Monetary Fund revised its projections for GDP growth upwards, with the US expected to grow by 6.4% in 2021 and China by 8.4% over the same period.

The broadening of the recovery in equities globally would suggest that the market anticipates a successful global inoculation drive and a potential reopening of borders. Valuations have moderated through the start of 2021 but remain at elevated levels, while sources of yield across both equities and fixed income remain constrained.

India has been devastated by a surge in Covid-19 infections, with over 20 million confirmed cases in early May.

United States

According to the Centres for Disease Control and Prevention, the United States has fully vaccinated more than 100 million people (including two thirds of all seniors) against the Covid-19 virus, providing further reassurance to markets that the worst of the pandemic is over. However, while confidence measures point to greater optimism, other economic data points to a recovery that is less emphatic than expected.

The US S&P 500 rose 3.5% over April as optimism about corporate earnings offset concerns regarding rising Covid-19 infections. Facebook reported better than expected 1Q21 results, with revenue jumping 48% on the prior corresponding period to US$26.17 billion, driven by a 30% year-on-year increase in the average price per ad and a 12% increase in the number of ads delivered. Alphabet (Google) also beat the market’s expectations, reporting a rise in revenue of 34% to US$55.31 billion, boosted by a surge in advertising revenues.

The S&P 500 Index (USD) returned 5.24%
The Dow Jones (USD) returned 2.71%

Asia

India has been devastated by a surge in Covid-19 infections, with over 20 million confirmed cases in early May. A number of states have been forced into lockdown as hospitals struggle to provide beds and oxygen, while Prime Minister Modi urged all citizens to get vaccinated to help control the wave. The Covid-19 impact will likely set back India’s economic recovery, but it is still possible that the country could see double digit GDP growth over 2021 once the vaccine drive intensifies and infections come under control.

China has made deep inroads with its own vaccination program, which has so far inoculated over 240 million people, predominately with the Chinese-developed Sinopharm and Sinovac vaccines. The World Health Organisation is considering the Chinese vaccines for emergency use, which could mean wider distribution through the Covid-19 Vaccines Global Access (COVAX) initiative.

The Hong Kong Hang Seng PR Index (HKD) returned 1.22%
The Nikkei 225 PR Index (JPY) returned -1.25%
The Shanghai Shenzhen 300 PR Index (RMB) returned 1.49%

Europe

The Covid-19 situation in Europe is improving as reported cases decline and countries push ahead with vaccine rollouts. According to the World Health Organisation, 5.5% of the European population have contracted Covid-19, while 7.0% have been fully vaccinated—a number which is expected to grow rapidly in coming months.

Economic data has generally been better than expected in recent months, but the eurozone as a whole suffered a decline in GDP (-0.6%, slightly better than the -0.8% expected) in Q1 2021 as the pandemic continued to bite in some regions.

The UK’s FTSE 100 PR Index (GBP) returned 3.83%
The German Dax (EUR) returned 0.85%

Australia

Australia awaits one of the most important federal budgets in history with the government set to take advantage of record low interest rates to plug the deficit following the mass stimulus deployed during the pandemic. Treasurer Frydenberg said Australia can grow its economy while maintaining “a steady and declining ratio of debt to GDP over the medium term as we continue to move towards balancing the budget.” Treasury’s projections are that nominal economic growth will exceed the nominal interest rate for at least the next decade.

The rotation out of growth and into value sectors has been the key theme through 2021 as the economic recovery materialises, underpinned by a lower unemployment rate. Unless some unforeseen tail risk event occurs, it is expected that business and consumer confidence will rise, providing a clear indication of ‘normal’ conditions returning in the not-too-distant future. In recent stock related news, JB Hi-Fi reported 3Q21 total sales growth of 10.4% in Australia, 16.0% in New Zealand, and 5.8% in The Good Guys. Sales growth slowed in February and March, but the company noted that it started to cycle elevated sales growth from mid-March.

Afterpay reported 3Q21 underlying sales growth of 104% on the prior corresponding period, reflecting strong operating performance across all regions. The US was the highlight, becoming the first region to record more than $1 billion in underlying sales in a single month. Given the US market is now its largest contributor, Afterpay is currently engaging external advisors to explore options for a dual listing in the US. Woolworths provided its 3Q21 sales results, with group sales up 0.4% on the prior corresponding period.

Market Returns (last 12 Months)

Over the last 12 months Australian Equities have outperformed international equities largely due to an appreciating Australian Dollar which has hindered global returns.

The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months. The graph does not reflect your actual portfolio performance.

*Source: Lonsec Research Pty Ltd