Monthly Market Review – December 2020
VIEW PDFHow the different asset classes have fared: (As at 31 December 2020)
1 Bloomberg AusBond Bank 0+Y TR AUD, 2 Bloomberg AusBond Composite 0+Y TR AUD, 3 Bloomberg Barclays Global Aggregate TR Hdg AUD, 4 S&P/ASX All Ordinaries TR, 5 Vanguard International Shares Index, 6 Vanguard Intl Shares Index Hdg AUD TR, 7 Vanguard Emerging Markets Shares Index, 8 FTSE Developed Core Infrastructure 50/50 NR AUD, 9 S&P/ASX 300 AREIT TR, 10 FTSE EPRA/NAREIT Global REITs NR AUD
The ASX All Ords has had a strong start in December before the emergence of a new cluster of COVID-19 cases in Sydney’s northern beaches on 9 December 2020 saw markets tempering expectations of a swift recovery. Despite this, the ASX All Ords returned 1.75% in December 2020. Markets were buoyed by strong commodity prices with iron ore rising 20.0% over the month to be up an astounding 152.9% since its April lows. Strong demand from China and supply disruptions in Brazil were behind the price increases. The surge in commodity prices and overall weakness in the US dollar has seen the Australian dollar trade to $0.76, levels not seen since 2018.
Meanwhile, tensions between Australian and China continued to flare during December 2020, with China banning Australian coal exports and Australia taking up action with the World Trade Organisation. Given China’s high reliance on Australia’s iron ore exports, the impact is expected to be limited. In addition, the incoming Biden administration is expected to try and resolve the US/China tensions in a more diplomatic way, paving the way for Australia to resolve tensions with China too.
New global coronavirus cases continued to climb although at a slower pace. While the mortality rate in developed countries has dropped from 8.5% to around 2.0%, the number of deaths is approaching April highs and some hospitals are at or near capacity. Alarmingly, in the UK, a new strain of COVID-19 was discovered to be more infectious, though not necessarily more severe. This led to more than 40 countries suspending travel with the United Kingdom and a nationwide lockdown. Thankfully vaccines are still expected to be effective on the new strain. Across the globe vaccines were rolled out, however, supply and transport issues meant the rate of roll out was below expectations. The vaccine rollout is not expected to help with the current wave but should significantly help the recovery in the second half of 2021.
With the rise in global coronavirus cases, major governments around the world continued to reiterate their support for the economy with the ECB and the US committing to stimulus support. The ECB increased its pandemic emergency purchase program from €1.35tn to €1.85tn and extended the program to March 2022. The US also passed a nearly $900bn stimulus bill. While not as large as many had expected the stimulus is big enough to hold off a recession. Markets reacted positively to these announcements. Finally, after years of negotiation, the Brexit agreement was completed and signed between the UK and the European Union.
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