Market Summary | February 2021

Covid-19 cases continue to build globally, with around 114 million reported cases at the start of March, but the vaccine narrative is propelling the economic recovery forward, even as some regions face logistical headwinds. Fiscal and monetary policy remain extremely accommodative and are helping households and businesses through the final stages of the pandemic.

Markets globally were strong until mid-February when rising yields spooked investors, raising the prospect of inflation. Despite the carnage in bond markets, many equity markets still delivered sound returns for the month of February.

The Astra Zeneca vaccine began its roll-out throughout Europe and Australia

United States

President Biden marked the distribution of 50 million coronavirus vaccine doses since taking office, reaching the halfway mark of the administration’s goal of 100 million inoculations within the first 100 days. An independent advisory panel voted to recommend Johnson & Johnson’s Covid-19 vaccine for emergency use, which would make a third vaccine available to Americans.

Value shares continued their rally through the start of 2021, but performance has not been uniform, with cyclical stocks benefitting strongly from renewed confidence while value with a quality bias has struggled. Value and cyclical sectors such as banks, commodities producers and travel companies have been leading the reflation trade-driven advance.

The S&P 500 Index (USD) returned 2.61%
The Dow Jones (USD) returned 3.17%

Asia

After managing economic growth of only 2.3% in 2020, its weakest in decades, the Chinese government is aiming for a significant rebound in 2021.

The Chinese authorities appear to be focused on the quality of growth, including reform and innovation, rather than pure numbers. China is relying on two domestically developed vaccines and is competing with Russia in conducting ‘vaccine diplomacy’ throughout central Asia, although based on data from Brazil, China’s Sinovac jab showed an efficacy rate of just over 50%, which is well below Pfizer’s 95% efficacy rate.

Japan’s vaccine campaign has stalled due to shortages, with only limited doses of the Pfizer vaccine available until increased supplies can reach Japan from Europe, which is expected to be around May.

The Hong Kong Hang Seng PR Index (HKD) returned 2.46%
The Nikkei 225 PR Index (JPY) returned 4.71%
The Shanghai Shenzhen 300 PR Index (RMB) returned -0.28%

Europe

Following strong growth in the third quarter, Europe's economy contracted 0.4% in the December quarter as the pandemic tightened its grip on the continent, while the EU was forced to cut its growth forecast for 2021 from 4.1% to 3.7%. The race to inoculate has been derailed by logistical challenges and shortages. In Germany only 6% of the population has received the first dose, while the German government was forced to reverse its decision not to authorise the AstraZeneca vaccine for people over the age of 65.

Across the channel, over 20 million people in the UK have received their first doses of the vaccine, coinciding with daily case numbers at their lowest since September 2020. Prime minister Johnson announced a four-stage plan to lift restrictions in England, with all restrictions on social conduct to be lifted by June.

The UK’s FTSE 100 PR Index (GBP) returned 1.19%
The German Dax (EUR) returned 2.63%

Australia

The rollout of the AstraZeneca vaccine is set to begin in March as the first 300,000 doses landed in Sydney, with 1.2 million more doses due shortly from Europe before Australian partner, CSL, begins production of 50 million doses. The federal government said Australian health professionals will soon be delivering over 500,000 vaccinations a week, with general practitioners set to assist in the Covid-19 vaccine rollout in coming weeks.

GDP grew 3.1% in the December quarter, taking the yearly rate from -3.8% to -1.1%. The result marked the second straight strong quarter of growth as the economy continues to recover from Covid-19 led restrictions helped by high levels of monetary and fiscal stimulus.

Earnings season revealed a corporate environment still impacted by Covid-19, with earnings down in aggregate and companies opting to hold more cash, although the lift in dividends has been a key positive development for Australian investors.

Cyclical shares have benefitted from greater confidence, spurred on by the vaccine rollout and the return to more normal economic conditions. After falling out of favour during the pandemic, major banks have reported dividend increases and rising payout ratios. The sticking point has been the recent rise in yields, which has had a significant impact on growth sectors such as IT, although fundamentals remain largely unchanged.

Recent earnings releases include Woolworths, which reported 1H21 sales growth of 11% on the prior corresponding period. Australian Food total sales grew 11%, benefitting from Covid-19 related demand, but sales moderated over 2Q21 as pandemic restrictions eased. CSL’s interim 1H21 results showed exceptionally strong performance from its influenza vaccine business Seqirus, which reported a 38% jump in revenue on the prior corresponding period, compensating for Covid-19 related headwinds in plasma collection. A2 Milk reported a 16% fall in revenue and 32% decline in EBITDA driven by disruptions in the daigou and CBEC distribution channels.

Market Returns (last 12 Months)

International Equities have significantly outperformed domestic equities over the last 12 months largely driven by advancing technology companies which have been a big beneficiary of the COVID-19 environment.

Returns on cash and fixed income remain subdued.

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