To say 2020 was ‘a year like no other’ is probably an understatement.
A mysterious virus that no one took all that seriously at the beginning of the year morphed into a global pandemic come late February.
The sudden meltdown in March pulled the rug from under riskier assets like shares and property. Even stable fixed income products lost their sheen in the form of lower yields.
That was before a record round of spending from government and stimulus from the Reserve Bank helped put a floor under falling share prices in April.
Investors showed their willingness to funnel cash into perceived winners over losers regardless of ongoing calamity and near collapse of the economy heading into June.
The disconnect between the economy and share markets provided us with a clear reminder of the ‘fortune-teller’ roll of the share market. The share market tends to look 6-9 months forward which goes some way to explaining why share prices can rise when the economy is going down the toilet.
The Big V
While the rebound for share prices was as sharp as the initial downward spiral, we saw a similar path for economies as most underwent a V-shaped recovery into the new financial year as many lockdowns were reversed (ex-Melbourne).
A new, and more temperate, U.S. President elect coupled with news about multiple vaccines for COVID-19 saw the share market rally extend into Christmas.
November was particularly good. Markets responded to Biden’s victory and news of a successful vaccine positively. The MSCI World index rose 12%, the largest rise for November since 1975.
The gains continued in December with many major indices such as the S&P500 and NASDAQ ending the year at record highs.
There were big differentials in share market around the world though. World equities posted a total return of around 14% for the calendar year in Aussie dollars. US equities (+18.4%) outperformed other major markets, due to its heavy weighting in tech companies.
Not So Pretty for the Rest
In contrast, the Eurozone (-2.6%) and UK (-11.5%) markets got hammered. They were weighed down by repeated waves of COVID-19 and, for the UK, unending negotiations over Brexit (they ultimately came to some type of conclusion at the end of the year).
Australian shares underperformed against broader global markets (the actual return in Aussie dollars was 1.74%) despite a less severe progression of the virus compared to North America and Europe.
Australia’s lacklustre performance on a relative basis was due to its heavy weighting in banks and underexposure to roaring tech stocks. Afterpay (ASX:APT) was the notable exception in the tech sector with its share price bottoming at $9 in March before rising to about $120 a share at year end.
The ‘dividend-hungry’ Australian market was also hurt by the COVID-19 induced economic shutdown which hit the cashflows of companies and forced them to slash dividends.
By the Skin of our Teeth
Overall, not a bad outcome for the Australian share market and client superannuation balances considering early forecast for the ’end of days.’
Watch out for our next article taking a look at the year ahead and our thoughts on potential opportunities among different asset classes.
In the meantime, see the table below for a yearly wrap of annual returns for a year we won’t forget anytime soon.
|Asset Class|| 1 Year Return Ending |
31 December 2020
|Australian Fixed Interest||4.48%|
|International Fixed Interest (Hedged)||5.30%|
|International Shares (Hedged)||10.57%|
|International Shares (Unhedged)||5.73%|
|Global Property (Hedged)||-13.72%|
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We have offices in Geelong and Torquay and help clients right across South-West regional Victoria plan for retirement without the complexity.