Monthly economic update with MLC, February 2021

Funds Management

by Clive Tompkins

MLC Asset Management Senior Economist Bob Cunneen discusses the outlook for the Australian economy, and the performance of global shares and the Australian market over February.

Why did global shares deliver a solid 1.4 per cent return for February?

Global share markets delivered a solid 1.4 per cent return in February. At the start of February, we had very strong performance. Wall Street made record highs. European shares were also making very strong gains, up nearly 4 per cent in early February. However, over the course of February, some of these gains started to fade, in particular with rising inflation risks and concerns being shown in the bond market. Now, for the end of February itself, we saw the Standard and Poor's 500, it was up about 2.7 per cent and the German DAX was up 2.6 per cent, but this only came back to a 1.4 per cent gain for global shares because of the strong Australian dollar performance.

How is the global economy performing?

The global economy is delivering a multi-speed performance currently. At the end of last year and early this year, we had the virus rapidly spreading across the United States and Europe. And since it peaked in early January, with virus cases coming down from 700,000+ per day to approximately 350,000, there has been some improvement in the global economy in terms of positive business surveys and some encouraging signs in terms of rising commodity prices. But, unfortunately, we still have curfews and mobility restrictions in Europe. And we do have some restrictions in terms of service sector activity in the United States. Against that, the Asian economies seem to be doing particularly well. And that is largely because they've managed to contain the virus better than the rest of the world.

Why did Australian shares deliver a 1.5 per cent gain?

Australian shares also delivered a solid 1.5 per cent gain in February, but this was largely on the back of the strong performance from the resources sector, which was up 7.5 per cent, as well as financial sector shares, which are up approximately 5 per cent. Now, a couple of factors behind that. Firstly, we saw extraordinary gains in metal prices and iron ore prices during February. In the case of copper, that was up 16 per cent, and iron ore spot prices were up 10 per cent. So, you saw very strong gains in the resources sector, that's 7.5 per cent, particularly featured with BHP and Rio. Against that, we saw some weakness in the information technology sector and the utility sector, which were down approximately 8 per cent in February. There were a couple of concerns here. Firstly, rising bond yields diminished the appetite for these sectors. We also saw some significant gyrations with the Nasdaq, which particularly impacted the information technology sector.

How is the Australian economy travelling?

The Australian economy seems to be doing remarkably well currently. Now, we've just received gross domestic product data for the December quarter, which shows that the Australian economy expanded by 3 per cent, and this follows a similar 3 per cent growth in the September quarter. So, we've had two consecutive quarters of economic growth, which suggests that the Australian economy is posting a very strong recovery. For January, we also saw encouraging signs in terms of car sales, employment and retail spending. So, the Australian economy is travelling very well and looks to have a very strong opening to 2021.


Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.