Economic Review

11 Mar

Economic Review

Global Equity Markets 
Global shares posted solid gains in February after significant price swings. Progress with the
coronavirus vaccine rollout was the key positive for global shares but this was partly
countered by inflation concerns and sharp rises in long term government bond yields.

Wall Street initially gained comfort that President Biden’s US$1.9 trillion rescue package and
the vaccine rollout would support the US economic recovery in 2021. With new virus
infection cases now falling, investors have taken the optimistic view that the worst is over.
Better than expected corporate profit reports also provided support for US shares. The 2020
December quarter appears to mark a key turning point for US corporate profits with the first
annual gain since late 2019. But the sharp rise in US government bond yields in the closing
weeks of February saw US shares partly reverse their recent gains.

After a lacklustre January, European shares made gains in February. Investors were
encouraged that declining virus cases should provide the opportunity to end curfews and
lockdowns across the European continent. European economic activity has been weak with
Real GDP declining by 0.4% in the final quarter of 2020, to bring the year average decline to

Asian share market performance was mixed. The Shanghai Composite and MSCI China
Index initially surged given confidence in China’s economic recovery. However, these gains
evaporated in the final week of February as rising commodity prices caused consternation
over future profit prospects. Japan’s share index proved more positive with the benefit of
mild improvement in business surveys and a revival in industrial production.

Table 1: Global share market performance – February 2021
US S&P 500 2.7%
US Dow Jones 3.4%
Euro Stoxx 50 4.5%
German DAX 2.6%
UK FTSE 100 1.6%
Japan Nikkei 225 4.8%
China Shanghai Composite 0.7%
Source: Factset, IRESS, February 2021

Australian share market review
Australian shares made modest gains. February reporting season was generally positive,
with most companies either beating or meeting market expectations. Rising iron ore, metal
and energy prices boosted returns for the resources sector, with gold a notable exception.
Financial sector shares also made strong gains with the view that Australian businesses and
consumers are in a much better position to meet debt commitments. In contrast the
information technology and utilities sectors proved sensitive to global shifts in risk appetites
and rising bond yields, recording declines for the month.

The Australian Dollar (AUD) strengthened against the US Dollar (USD), rising by 0.8%
during February, to finish the month at USD0.7706.

Table 2: Australian share market performance – February 2021
S&P/ASX 200 Accumulation Index 1.5%
S&P/ASX 200 Industrials Total Return Index -0.1%
S&P/ASX 200 Resources Total Return Index 7.5%
S&P/ASX Small Ordinaries Total Return Index 1.5%
S&P/ASX 200 A-REIT Total Return Index -2.6%
Source: Factset, IRESS, February 2021

Large Caps (S&P/ASX100)
Oz Minerals was the strongest performer (+20.1%) in February together with Nine
Entertainment (+19.1%) and IDP Education (+18.6%). The weakest performance came from
Appen (-25.3%), followed by Northern Star (-20.5%) and Orica (-17.7%).

Listed property
The S&P/ASX 200 AREIT Total Return Index posted a 2.6% decline in February,
underperforming the S&P/ASX 200 Total Return Index by 4.1%. The Retail AREITs posted a
3.7% increase as lockdown restrictions eased. But the other AREIT sectors posted declines
led by Industrial AREITs (-6.2%), followed by Diversified (-5.0%) and Office AREITs (-1.4%).

Written 3 March 2021.

Important Information
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