2020 proved to be a very challenging year for investment markets due to COVID. Sharemarkets and the property market alike sold off as the world was shaken by the worst health related economic crisis in history. So to evaluate where we have been and where we are headed, our 2020 Market Overview and Outlook for 2021 assesses what could be install for the coming 12 months.
As the world came to grips with the unfolding Covid pandemic in the first quarter, it was anyone’s guess where we would be at this point. Dire health warnings predicted how fast the spread of Covid could be, including the death toll that could follow.
Economically it was clear that the impact would be huge and depending on how it was handled could have resulted in anything from a global recession to a full blown depression. Back in March, when the uncertainty was at its peak, speculation on how the sharemarket may be impacted was simply illustrated in letters:
V = a share market that drops and recovers quickly (this is what has played out)
W = a share market that drops, falls again and then recovers later
U = a drawn out global recession that sees share markets reach a low point and stagnate before recovering (The baseline prediction of many pundits in March)
L = an economic depression which takes years or even a decade or more to recover from, with share markets plumbing lows and moving side ways for a long period
2020 Market Recap and Overview
Unfortunately, due to poor governance from some of the worlds most powerful and economically important countries there has been a huge human cost, which has been deeply saddening to see. Fortunately, however the economic response was extraordinary.
The size and speed of the financial support provided by government and central banks from around the world has been unprecedented and largely consistent. The significance of this is that the economic pillars, including business viability, employment and financial asset values that underpin our confidence as consumers, have remained largely intact.
This has provided a lifeline essentially to help us through the worst of the health crisis until a vaccine was found. Fortunately too, the incredible global effort combined with support from new technology, which helped accelerate our success in finding a vaccine has given us the hope needed to get us to where we are today.
While the financial cost of this has been massive, the alternative would have seen our economic pillars fall like dominos, being left to restart themselves over time.
We’ve seen this scenario play out before in the great depression and history has shown the cost would be a lot higher left untreated. In this way you could liken it to seeking medical intervention. Usually if it is administered quickly, it gives the patient the best opportunity to recover quickly, which is also true economically.
Outlook for the Markets in 2021
As we step into 2021 and take out our crystal ball for the year ahead, ostensibly we are in a stable place. With more than one viable vaccine being rolled out around the world, it is conceivable that we will have the virus under some degree of control by year-end, which would allow the world to return to a form of normality.
At this stage, governments and central banks around the world remain committed to providing the support the economy needs to get us through this pandemic and assuming this remains the case, it appears that 2021 will be a positive year for share and property markets.
The next major hurdle in this regard will be whether the US approve their next massive support package of US$1.9 trillion and now that the Biden administration has office and has control of the senate this is looking likely and should be supportive for share markets.
Besides government support, investors will be looking to global recovery in economic growth, including profit growth to support valuations. The US has just started their profit reporting, which is so far strong and expected to exceed expectations, which should also offer some stability.
With this said, risks always remain. The biggest risk still sits with the pandemic and the global response to it and ability to cope with it, with another being societal and political division. For Australia, our relationship with China is concerning for example.
As our largest trading partner, they are making trade difficult to assert their power and while it appears we are in a position to navigate it currently without severe economic impact this could quite easily change if the relationship were to deteriorate further.
With this in mind, we are approaching 2021 with cautious optimism. Our 2020 market overview and outlook for 2021 has us thankful to be living in Australia right now, considering our government's response to protect both our health and our economic interests and hopeful that the world will pull through the pandemic as it appears today we will.