Market Overview – March Quarter 2021

Triple S returns to 31 March 2021

	3 months %	FYTD* %	1 year %	3 years % p.a,	5 years % p.a.	10 years % p.a.
Cash	0.0	0.1	0.2	1.2	1.5	2.4
Capital Defensive	0.0	4.6	8.0	4.4	4.6	5.5
Conservative	0.9	7.8	13.2	5.7	6.2	6.7
Moderate	2.1	10.6	17.0	6.7	7.4	7.5
Balanced	3.9	15.0	23.5	8.6	9.2	8.7
High Growth	4.7	17.2	27.0	9.3	10.6	9.7
Socially Responsible	2.8	13.9	22.7	7.9	8.1	7.8

Returns net of fees and gross of tax, based on Super SA unit pricing formula.

*FYTD = financial year to date, that is, the return since 1 July 2020.

 

Global economy

It has now been more than one year since Australia confirmed its first case of COVID-19. The pandemic affected all of us and brought about one of the worst economic crises since The Great Depression in the 1930s. Globally, share markets experienced dramatic selloffs and bottomed in late March 2020. But one year on, markets have rebounded rapidly. This was reflected in the exceptionally strong one-year (31/03/2020 to 31/03/2021) returns across our investment options.

COVID-19 was addressed on two fronts: as a health crisis, and an economic crisis. Policymakers responded to the economic impact of the pandemic with zero interest rates, liquidity for financial institutions, and very large fiscal stimulus. It is evident that these policies have led to an incredible recovery, firstly for financial markets, and then the global economy. Investors’ confidence grew as we learned how to confine outbreaks, discovered more effective treatments, and developed multiple effective vaccines (much earlier than initially anticipated). This has led to an easing of enforced lockdowns and businesses reopening.  

Economic data strengthened over the quarter with manufacturing expanding strongly and improving consumer confidence. The Organisation for Economic Co-operation and Development (OECD) recently revised its expectation of global GDP growth from 4.2% in December 2020 to 5.6% in 2021.

However, uncertainty remains as new strains of COVID-19 emerge and the virus continues to wreak devastation in some countries, e.g. India.

Share markets

For the March Quarter, international equities performed strongly and gained 6.1%. More specifically, the US rose 9.9%, Europe rallied 7.6% and emerging markets increased by 4.0%.

The US share market was supported by the Federal Reserve’s forecast for near-zero interest rates through to at least 2023, and the final approval of President Joe Biden’s $1.9 trillion fiscal package. European shares continued to rally as fourth quarter earnings results were encouraging. Further support came from the European Central Bank which announced an acceleration of its stimulus program. In the UK, markets welcomed an agreement on Brexit regarding future trade between the UK and the European Union.

Australian Equities

The Australian share market gained 4.2%. This was led by the Financial sector (+12%), with ANZ and Westpac being the standouts among the Big Four banks. Other sectors to outperform included Communication Services (+9%) and Consumer Discretionary (+9%). The sectors that held back the market were Information Technology (-10%) and Healthcare (-2%).

China’s economy accelerated in the second half of 2020 and was the only country to end the year with positive GDP growth. This was driven by industrial production, due to the demand from global consumers. Lockdowns caused consumers around the world to pivot away from spending on services and instead increased their purchases of physical goods. As China is a global manufacturer of many of those goods, it helped grow their economy.

Property/Private markets

While office markets have been experiencing increased tenant inquiry, rental growth remains under pressure given increased vacancy. Valuations of retail centres have stabilised since the significant falls experienced in 2020; however, market rents and tenant demand will remain a watchpoint as Government support mechanisms cease and the ongoing structural shift towards e-Commerce continues.

Private markets (Infrastructure and Private Equity) have experienced improved valuations as economic conditions continue to recover and they reflect the significant increases in listed Equity markets.

Bonds/Cash

Fixed interest (bond) returns were negative over the quarter as yields rose due to two key drivers: the success of the vaccine rollout in certain countries, and the announcement of additional, massive US fiscal stimulus that will spur economic growth. With some economies returning to normal, the increased stimulus has investors concerned that inflation will return. This caused a spike in the bond yields, as inflation may trigger central banks to increase cash rates earlier than expected. Bond prices fell because they move in the opposite direction to bond yields.

The yield for cash is close to zero, and it is expected that the Cash Option will continue to return close to zero over the medium-term, after fees and taxes.