Global markets started November in an upbeat mood as the initially contested US election delivered a pleasing result for investors – a win for the Democrats.
The encouraging results from COVID-19 vaccine trials also boosted investor confidence.
The victory for President-elect Joe Biden seemed to appease investor concern as the potential winding back of corporate tax rates and introduction of greater regulation is significantly reduced with Republicans looking likely to control the US Senate.
With Biden reigning over a split US Congress, this should give investors a supportive backdrop for corporate America and a more stable and predictable leader on the trade front.
However, given the current political vagaries, the ANZ Chief Investment Office maintains its reservations as to how long-lasting and significant the impacts of the US election will be on the markets.
On the other hand, the encouraging results of vaccine trials from Moderna, Pfizer and Astra Zeneca are certainly positive for markets and growth prospects into 2021. Despite questions around the Astra Zeneca vaccine efficacy, every encouraging news on the vaccine front is a boost to investor sentiment.
Noting the improvement in risk appetite, the ANZ investment team has seen significant rotation into cyclical stocks and sectors that were hardest hit during the early stages of the pandemic.
Investment outlook in brief
Given the decreasing risk levels and lack of inflationary pressure, we see the macro picture in a temporary ‘Goldilocks scenario’.
A vaccine will be a real ‘game-changer’ as it will allow economies to re-open. And coupled with central banks’ 'lower for longer' stance on interest rates, this could be a powerful incentive for investors and markets in general.
In mid-November, we shifted our portfolios to capture more exposure to Australian equities and Global Listed Real Estate Investment Trusts (GREITs). We see both asset classes as potential beneficiaries of the re-opening trade as economies and markets show signs of recovery.
In the short-term, we anticipate minor corrections in some market segments as we believe some sectors may have already run ahead of themselves. We will continue to monitor and potentially add to risk assets as we see fit.
1. Comprises of 50/50 split between GREITs and infrastructure securities.
2. Percentage of developed market and emerging market equities hedged from foreign currency into Australian dollars. Representative diversified portfolio with 70/30 growth/defensive assets.
As at 1 December 2020.
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