Investment update for February 2021
COVID-19 vaccines improve investor and consumer sentiments
Equity markets finished slightly positive by end of February. Over the month, a sharp increase in government bond yields was a concern for markets in the US and Australia. However, successful vaccination programs commencing around the globe—particularly in developed markets like the US and UK—and lower COVID-19 infection rates improved investor sentiment. Emerging markets produced a small negative return driven by weaker returns in China, while developed markets were on the upside for the month and Australian equities also provided a small positive return.
China’s economic recovery slowed slightly in February, following an increase in COVID-19 cases that resulted in movement restrictions which coincided with Lunar New Year. While Chinese authorities continued to provide stimulus to the economy, that support has dampened.
Economic figures out of the US have been positive. Retail sales, manufacturing and services data improved on last month. US President Joe Biden’s $1.9 trillion stimulus package, which would see the total US fiscal support for COVID-19 approach 25% of GDP, was submitted for deliberation by congress. Commentators expected the package will be passed.
Across Europe, both economic output and sentiment showed small improvements in February. While delays in the vaccine rollout and ongoing lockdown measures negatively impacted returns, the approved ‘Recovery and Resiliency’ plan from the European Commission (EC) improved consumer confidence.
In the UK, stricter lockdown measures resulted in poor retail sales data over the month. At the same time, vaccines reached 20 million people and this success, along with reopening announcements, improved sentiment. Manufacturing and services data showed gains over the month.
Domestically, the Reserve Bank of Australia (RBA) reaffirmed the cash rate would remain unchanged until at least 2024. They have purchased $74 billion of government bonds under the initial $100 billion program and will buy another $100 billion to keep the 3-year yield at the target of 0.1%. In response to concerns about a surge in house prices, the RBA indicated that they are monitoring carefully, and lending standards remain solid.
The AUD gained against all major currencies most notably against the USD and JPY. Oil regained in value for the month and the iron ore price continued to climb.
Government bond yields rose over the month on expectations of continued economic rebound as vaccine programs are rolled out. Bond indices produced negative returns over the month.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
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