Page 8 - Renshaw, M&T - review report - Febr21

which saw the UK finally and formally exit Looking forward
the EU.
Closer to home, there was plenty to assess
and absorb. On the virus front, politicking
over state borders continued, whilst we
also saw increased restrictions leading into
Christmas on a relatively small number of
cases. We had important announcements
on both the fiscal and monetary policy front
with the Federal Treasurer handing down
one of the biggest budgets in decades with
deficits expected for the next 4-5 years and
federal debt likely to clear the trillion-dollar
mark in the not-so-distant future, all in the
name of helping the economy recover from
recession in 2020 and to assist in
kickstarting the recovery in 2021. This was
followed up with a big, but expected,
announcement from the Reserve Bank of
Australia where they lowered the RBA
Cash Rate to an all-time low of 0.1%,
provided the banks with cheap borrowing
lines to encourage them to lend, and
kickstarted Australia’s first foray into
quantitative easing (QE) with a program for
$100 billion. Lastly, but not least, Australia- willingness for people to take the vaccine.
China relations continued to sour over the
quarter, with the Chinese targeting almost
all Australian exports with exception of iron
ore.
From a market perspective, investors
focused on the positives in the quarter with
successful phase 3 vaccine results
resulting in a very aggressive rotation into
cyclical and Covid-exposed sectors and
stocks, whilst continued support from
government and central banks along with a
Joe Biden presidency likely leading to
considerably more US fiscal support led to
broader support for markets, particularly
growth assets. Cash and bond returns,
whilst positive, were weak given extremely
low central bank cash rates and very low
bond yields, with significant bond buying by
central banks continuing through their
quantitative easing programs. Assets
denominated in Australian dollars
performed strongly as the Australian dollar
rose on soaring iron ore prices whilst the
US dollar continued to weaken.
The outlook looks rather positive from here
considering the continuation of
considerable fiscal and monetary stimulus,
which along with the vaccine rollout picking
up pace, should see economies re-open
and a subsequent strong bounce in
economic growth. At the same time, given
the low returns on offer from defensive
asset classes like cash and bonds, we’re
likely to see significant weight of money
flow into growth asset classes like equities,
property, and infrastructure. Household
savings rates are very high, cheap debt is
on offer for both households and
businesses, and we’re likely to see
government invest considerably in
infrastructure.
In saying that, governments and their
health advisers have bet the farm on
vaccines being their only solution to
eliminating lockdowns as a policy
response. As such, risks remain regarding
the rollout of the vaccine and the
In addition, the economic damage caused
in 2020 won’t be repaired and recovered
for some time, and some sectors and
businesses won’t ever recover. Last but
not least, inflation is back on the agenda
given the significant fiscal response we’ve
seen and are likely to continue seeing.
Inflation, and inflation expectations,
presents both opportunities and risks,
whilst also requiring different portfolio
settings and resulting in different portfolio
outcomes.
Chris Lioutas
PSK Financial Services -
Chief Investment Officer