With the global economy remaining ‘bullish’ after the rapid covid-19 recovery, the ASX 200 has continued its surge upward with levels now back above its pre-pandemic level. On June the 30th the market hit an all time high and has continued to soar since then up until the time of writing.
Promisingly domestic inflationary fears have also subsided as increased inflation numbers appear to be transient. Interest rates expect to stay low for the foreseeable future which is an indication that the bond market is repricing their expectations for future inflation thinking inflation may not be exceptionally high and instead marginally increase between the RBA’s target of 2-2.5%.
With global vaccines and government stimulus, economies around the world also rapidly re-emerging from the covid downturn with global financial markets and emerging markets having a rate of return of between 27-30% over the financial year. Australian Real Estate Investment Trusts (REITs) have further continued to perform exceptionally well returning 33% for the year and even outperforming Global REITs. This of course is off the back of painful lows experienced last year and a full recovery since then.
The Financial Services and Mining/Minerals Sector have led the recovery with year on year returns of over 40% and 30% respectively. After these sectors had a really tough go last year, they are now one of the main drivers of the ASX’s recent growth this year. The ASX itself is up 27.8% and that is the best return in 3 decades. Growth in consumer discretionary shouldn’t be a major surprise to anyone as with international travel off the table many families are spending more on the likes of entertainment, personal recreation, household appliances, luxury goods and vehicles.
Turning to the US market and similar trends can be seen there as well with the financial sector leading the economic recovery. Accompanying that is strong returns from the Technology and Communications sector from the large growth companies such as Apple, Google, and Amazon which have appeared to benefit greatly from a shift to a work at home culture.
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This information was prepared June 30, 2021 with assistance by Dr Steve Garth from Principia Investment Consultants.
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Some details (including names) have been modified for privacy purposes and assumptions have been applied regarding future interest rates, investment returns, the client’s circumstances and other financial and economic variables for illustrative purposes – actual outcomes may vary.
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