As advertised, COVID19 continues to play havoc around the world.  January 1st did not fix it.

However, we now have vaccines and we are seeing significant rollouts in the UK, US and Europe.

There are already issues around distribution and the EU seems intent on trying to monopolise the AstraZeneca (AZ) solution.  There will be more of this sort manoeuvring however the Australian Government seems to be well and truly in the game and if CSL can start producing AZ in Melbourne this will resolve a few concerns.  Greg Hunt back on the 6th of January announced that CSL is being funded to produce 50 million doses in the coming months.

There are a lot of vaccines coming to market and even the Russian solution, which was not exactly warmly embraced, is proving to be very effective and not showing a lot of side effects.  Russian vaccine more than 90% effective. To get an update on all of the options the following link is a good site Coronavirus vaccine tracker.

While the opposition parties are criticising the government for not rushing the vaccine to market, there is an argument for letting the larger, heavily impacted countries run their programs for this initial period.  As we have almost no virus in Australia, we don’t have the health emergency that justifies rushing to market.  Strategically it also allays concerns about our program and frankly if the program was running hard here and there was only a small number of complications, the nay sayers would be out in force and could derail the process.  The medical advice is we need 50-80% of people to be vaccinated to achieve Herd Immunity Vaccinations needed to end pandemic .

There are variants such as the UK and South African strain which may have challenged the success of the vaccine roll out but the link below gives a good summary of how, even if the vaccine doesn’t prevent you from getting the South African variant, the vaccine does a lot to prevent severe illness and hospitalisation.

Why are vaccines important to your investments?

This is a moving tableau and one of the biggest concerns our international analysts have is that current pricing of assets is based on a successful vaccine program so any potential failure would see a softening of markets.

Economic Forecasts:

There is actually lots of very positive economic news both here and abroad.

In Australia, unemployment is back to 6.6%, GDP growth is forecast to be 3.2% and the Reserve bank believes the economy will be back to pre-pandemic levels by the middle of the year – well ahead of forecasts.

Forecasts are always tempered with warnings about mutant strains of the virus impacting projections but 2021 projections on real GDP growth for 2021 from the International Monetary Fund (IMF) are:

2021 IMF World Economic Outlook

Does positive economic data mean rising asset prices?

The information above is already in the market and the market is a forecaster.  Arguably some stock valuations are extremely stretched.  In the US S&P 500, the top 5 stocks now make up 20.6% of the markets total market value.  In order these are Apple, Microsoft, Amazon, Facebook and Tesla (As at 5 Feb, 2021).

Our active manager’s top 5 holdings in their portfolios look quite different from this with very different exposures.  This would indicate they have been taking profits and looking for holdings that can provide more upside in the future. 

With mountains of government spending (stimulus) washing around the system, some analysts would argue for continuing equity growth and some would say it is factored in.  We always reiterate our business does not make ‘Hero’ calls.  We don’t abandon assets classes based on ‘the vibe’.  There are risks (there are always risks) and we continue to advance cautiously.  Our active managers are repositioning based on their analysis and we use a number of managers so we do not fall into the trap of one view.

If the vaccine rollout continues without major disruption markets are likely to stay positive. If there is a complication then there could be a correction but that would be a buying opportunity.

In this next normal, international travel will still be quite a way off.  Even with vaccines it would be likely international tourists would cause outbreaks and we can see how dramatically our premiers and their medical bureaucrats are reacting to even a single case. 

At the end of March, Job Keeper will be discontinued and this will be a real test on how 2021 will play out.

The positives are that we are a domestically driven economy which is recovering and if we can at least retain internal travel, we should see some recovery in the tourism sector. The rest of Australia seems to steadily be on the improve.

As always, if you have any concerns please do not hesitate to contact us.