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AUGUST 2021: Finance Update

27 September 2021

Equity markets have continued their upward trajectory – both locally and offshore. Low interest rates and central bank liquidity support continue to underpin the markets. Inflation concerns continue; however, markets are largely disregarding any negative news.

Asset values in some sectors are looking stretched as the market rally is extended. Diversification is key and although bonds and cash do not look particularly attractive from a return perspective, they provide those all-important “air bags” for a portfolio and cushion the fall if equity markets slide.

Australian Equities 

It was a busy month for investors as attention turned to the FY21 reporting season. Healthy profits and record dividends were a feature as materials and COVID beneficiaries continue to recover strongly from the March 2020 lows. Banks also continue to build momentum as bad debt provisions are scaled back amidst an improving economic backdrop. Several companies have announced share buy-backs and we will be in touch regarding these over coming weeks.

The Australian share market continued its advance for the year, with the S&P/ASX 200 gaining 2.5% for the month; year to date the index is up an impressive 17%. Information Technology contributed strongly with a 17% gain for the month, with Consumer Staples (+6.9%) and Health Care (+6.8%) also leading the index higher. Materials and Energy were the only detractors for the month with the sectors retracing 7.3% and 3.9% respectively; continued weakness in iron ore prices and a softer month for oil contributed to the losses.

Global Equities 

Global markets continued their climb into August, with emerging markets slightly outperforming developed markets as the region recovers from a sharp sell-off driven by Chinese equities in late July. Developed markets continue to be supported by economic stimulus and vaccination efforts, despite unabated trends in daily case rates across developed economies.

Inflation will be a key discussion point for the Federal Reserve meeting scheduled for the second last week of September. The timing and degree of stimulus tapering remains a central issue for policy makers to contend with as they must balance managing inflation without compromising economic growth. This poses a significant short-term risk for global equity markets which have been enjoying an unprecedented bull run since the March 2020 COVID induced sell-off.

Fixed Interest

August saw continued strong performance from domestic Fixed Income markets with longer term yields on 10-year Australian Government Bonds falling. The fall has been driven by doubts about the Reserve Bank of Australia’s commitment to tapering off the current level of stimulus, doubts which have grown significantly over the month as both Victoria and New South Wales remain in lockdown. In the US, continued strong economic performance has driven talks of sooner tapering, which has resulted in higher yields overall.

REIT’s (listed property securities)

A-REIT’s advanced strongly during August with the S&P/ASX 200 A-REIT Accumulation Index achieving 6.3% for the month and 30.8% for 12 months to 31 August 2021. The months news was dominated by the release of the 2021 full-year financial results. The financial results across A-REITs were generally strong, pushing the index higher.

CoreLogic reported that the 5-capital city aggregate all dwellings (including Sydney, Melbourne, Brisbane including Gold Coast, Adelaide, and Perth) advanced by 1.5% in August, to increase 17.2% year on year.

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