Investment update for November 2020
Australia’s economic recovery continues
Despite worsening global COVID-19 case numbers and lockdown measures reinstated by more countries, global equity markets rallied strongly over November, following promising news of three vaccines (Pfizer/BioNTech, Moderna, and AstraZeneca/Oxford). The US Presidential results had less impact on markets than expected and—despite escalating China/Australia trade tensions—strong iron ore prices ensured Australian shares increases over the month.
In the US, COVID-19 infection rates and the Presidential election results shared the headlines. Although the Trump administration contested some state results, the transition to the Biden administration has begun. Predicted policy changes from the president-elect include the US rejoining the Paris Climate Agreement and easing/avoiding tariff measures in the ongoing China/US trade war. Fiscal stimulus negotiations remain stalled, awaiting Senate elections that are set to be decided in early January.
Europe’s second wave of COVID-19 infections continued and stricter containment measures were implemented. The UK announced a further extension to its furlough scheme, now to continue to end of March 2021, in recognition of businesses and households requiring fiscal support. In response to the required fiscal stimulus, the Bank of England (BoE) announced it will expand its asset purchase facility by a further GBP 150 billion.
The China/Australia trade tensions continued to impact agriculture exports heavily. While current predicted impact to GDP is small, there is concern that an extension to bulk commodities—particularly iron ore of which Australia accounts for 50% of global exports—could result in more substantial negative GDP impact.
Australia’s COVID-19 infection rate remained low over the month, leading to eased restrictions and the reopening of more state borders. Economic recovery continued, but commentary predicts that pre-pandemic levels are not expected to be reached until end of 2021. To assist Australia’s economic recovery, the Reserve Bank of Australia (RBA) announced changes to their monetary policy at their November meeting. This included reducing the cash rate target from 0.25% to 0.1%; reducing the three-year bond yield target from 0.25% to 0.1%; reducing interest rate on new drawings under the Term Funding Facility to 0.1%; and starting an asset purchasing program of $100 billion over the next six months focusing on buying Australia government bonds with maturities of around five to 10 years.
The AUD appreciated against major currencies, most notably when compared with the USD. Commodity prices were mixed over the month reflecting supply disruptions in Brazil, industrial recovery in China, and the ongoing China/Australia trade tensions. The oil price picked up from last month and gold finished slightly negative.
Global and Australian listed infrastructure performed positively over November. Listed property performance was also positive with Australian listed property outperforming global listed property.
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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