The current pace of vaccination rollouts supports the view that economic activity in the United States will pick up significantly in the second half of the year.
Normalisation of economic activity in Australia is likely to resume more quickly than in many other developed nations and reach pre-virus levels of output by the middle of 2022.
Recent COVID-19 outbreaks and regional lockdowns are likely to leave GDP growth in China below potential in the first quarter but the fall in consumption demand is expected to quickly recover in the second quarter, with the offsetting effects leaving the full year outlook for China's growth unchanged and around 9.0%.
Monetary policies in developed and emerging markets are likely to remain highly accommodative, with the continuation of quantitative easing programs.
Inflation levels, although rising in some markets, are expected to remain below target levels through 2021.
The Market Outlook.....
Shares remain at risk of further volatility from rising bond yields. However looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines, negative real yields and still-low interest rates augurs well for growth assets generally in 2021.
We are likely to see a continuing shift in performance away from investments that benefited from the pandemic and lockdowns (technology and healthcare stocks, and bonds) to investments that will likely benefit from the recovery (resources, industrials, tourism stocks and financials).
Global Shares are expected to return around 8% this year, but with a rotation away from growth-heavy US shares to more cyclical markets in Europe, Japan and emerging countries.
Australian Shares are likely to be relative outperformers helped by: the relative underperformance over 2020/2021, better virus control enabling a stronger recovery in the near term; stronger stimulus; sectors like resources, industrials and financials benefiting from the rebound in growth; and as investors continue to drive a search for yield benefiting the share market as dividends are increased, resulting in a 4.5% grossed up dividend yield. Expect the ASX200 to end 2021 at a record high of around 7,200.
Still ultra-low yields and a capital loss from rising bond yields are likely to result in negative returns from bonds this year.
Unlisted Commercial Property and Infrastructure are ultimately likely to benefit from a resumption of the search for yield, but the hit to space-demand, and hence rents, from the virus will continue to weigh on near-term returns. Higher bond yields will also weigh on these asset classes in the medium-term.
Australian Home Prices are likely to rise another 5% to 10% this year and next, being boosted by record-low mortgage rates, government home buyer incentives and the recovery in the jobs markets. The stop to immigration and weak rental markets however will likely weigh on inner city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will likely see relatively stronger gains in 2021.
Cash and Bank Deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1% (most of you know this bit already!!)
Although the Australian dollar is vulnerable to bouts of uncertainty and RBA bond buying will keep it lower than otherwise, a rising trend is likely to remain over the next 12 months, helped by rising commodity prices and a cyclical decline in the US dollar, probably taking the A$ up to around $US0.85 by year end.
The economic summary is from Vanguard and is current as of 12/03/2021. The market update is current as of 19/03/2021 and is kindly provided by AMP. The information contained in this email is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.