In March equity markets lifted higher despite the worrying rise in COVID cases and new lockdowns particularly in Europe, central banks are continuing efforts to provide economic stability for both households and companies to ensure there is a strong platform to grow from. This central bank stimulus combined with unprecedented fiscal stimulus a year on from the declaration of COVID-19 as a global pandemic has seen growth assets return between 23-52% over the last 12 months.
Back in February we witnessed a surge in bond yields, indicating investors are expecting strong inflation over the medium to longer term, and in March whilst Australian bond yields softened slightly US bond yields rose significantly, further adding to inflation concerns. The COVID-19 vaccine rollout is of course helping however in Australia we seem to be lagging the rest of the world which will make the opening up of our borders a little trickier in the near term. Despite concerns around employment in Australia, that could be argued is artificially high due to the job keeper and job seeker efforts, unemployment has fallen from 6.3% to 5.8% a staggering drop given the current economic conditions however underemployment, i.e. those who want to work more hours or utilize their skills/education further still sits at 8.8%.
The Australian equity market was positive in March with the ASX100 up 2.5%. with both the Materials and Information technology sectors underperforming. The Materials sector was dragged lower primarily due to a weaker iron ore price which fell nearly 6% and as a result major iron ore producers fell in March. The Information Technology sector fell led by the Buy Now Pay Later stocks as investors took profits after very strong price rises in the past year. The Consumer Discretionary sector was one of the best performing sectors as was the Communication Services sector.
International equities rose by 4.3% on a currency-hedged basis while a slightly weaker AUD (moving from US$0.7706 to US$0.7617) increased returns slightly for unhedged investors to 5.0% for the month. The S&P500 and the Dow Jones Industrial Average in the US continue to hit all time highs as investors view the US vaccine rollout as a huge catalyst for stronger company earnings plus President Biden’s “American Rescue Plan” worth US$1.9tn will see direct payments being made to individuals, businesses and schools.
The yield on the Australian 10-year government bond yield fell 13bps to 1.79% and the 2-year government bond yield fell by 3bps to 0.09%. Conversely in the US the 10-year government bond rose by 34bps to close at 1.74% and the 2-year government bond yield rose by 3bps to 0.16%.
Benchmark Returns 31 March 2021
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