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Impressive market gains on encouraging vaccine trial results


11 December 2020




As investors welcome the decline in risk levels, the ANZ chief investment office explains its more bullish outlook amid improving market sentiment.

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.

ANZ investment strategy positions – December

Investment position
Asset class Assessment
Growth Assets

We moved to a mild overweight in position on growth assets as we increased allocation to Australian equities and GREITs.

We shifted to overweight on GREITs due to current valuations which look depressed and the upside potential to benefit from the re-opening trade.

Developed market equities

We expect equity markets to prosper in most geographies.

The US is benefitting from fiscal stimulus and ongoing US Federal Reserve support.

The Eurozone is getting support from its Recovery Fund and a resilient labour market. It also stands to benefit from any sector rotation due to its low exposure to the Tech sector.

The UK is currently trading at a low P/E level compared to its global peers and may benefit as the global economy recovers.

Japan remains a global cycle play and tends to do better when bond yields are rising and value and cyclical shares are outperforming.

Australian equities

We increased our position on Australian equities. Given the highly cyclical nature of Australian equities, this purchase should provide additional exposure to this segment of the market, which has rallied in November and looks set to continue.

Emerging-market equities

We maintain a neutral stance on Emerging Market (EM) equities. We view this asset class favourably as we believe it will benefit from US dollar weakness and provide cyclical exposure if the economic recovery continues to gather momentum.

Within EM the Asia region is where we expect to see the most upside, especially China, Korea and Taiwan.

Listed real assets1

We maintain our benchmark position on listed real estates and prefer GREITs as this stage. Based on current valuations, we see GREITs relatively attractive. And they should provide portfolio protection should inflationary pressures begin to pick-up in 2021.

Alternative growth

We maintain our benchmark position as we continue to advocate a long-term strategic allocation to alternative risk and return drivers to provide diversification.

This asset class typically has less volatility than listed real assets (which has continued to play out) and is, therefore, a valuable diversifier in periods of extreme markets conditions. 

Defensive Assets

We shifted our allocation to defensive assets to underweight as growth prospects improved and near-term risks declined. This reduction came at the expense of cash as we continue to favour global and Australian fixed-income assets within the defensive portfolio.

International fixed income

We remain overweight in international fixed income as central banks reaffirmed their ‘lower for longer’ commitment.

We retain our preference for US Treasuries due to their long duration and low yield but stable characteristics which offer diversification and downside protection.

Australian fixed income We are overweight in Australian fixed income. ‘Aussie’ rates look attractive on many metrics and have second most room to zero in the Developed Markets rates space. We like Aussie duration as an addition to the US duration position.

We are underweight in the asset class, having recently further reduced the levels of cash in portfolios to fund increases in Australian equities and GREITs, as our outlook has become more positive. As demonstrated in recent months, cash remains an important source of liquidity in portfolios, enabling us to deploy capital as necessary, alongside its risk reducing characteristics.

Foreign currency hedge ratio2 We remain mildly underweight in the AUD as portfolio protection, given the AUD is a risk currency, and should act as a form of protection in the event of any market pull-back. The AUD has appreciated strongly in the last couple of months mainly driven by risk-on market environment.



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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