The Australian share market rose (+1.2%) in December, advancing for the third straight month and delivering its best quarterly return ever. The best performing sectors were Materials (+8.8%) and IT (+8.6%), while the weakest performing sectors were Utilities (-5.4%) and Healthcare (-4.7%). From a company point of view the largest contributors to the overall share market return were BHP (+11.9%) and Fortescue (+29.4%), due to the continued rise in Iron Ore prices. Afterpay also jumped (+24.2%) hitting record highs. If you had the foresight to buy Afterpay at its low point in March it would have provided you with an astronomical 1,473% return through until the end of the year.
The world share index increased (+3.8%) for the month, but the Australian dollar rose (+4.7%), so for most Australian investors their International share holdings went backwards in value. India was amongst the best performers up (+7.7%), but share markets were broadly up across the board in Europe, Asia and the US.
According to Core Logic the housing market climbed (+1.0%) in December, to finish the year (+3.0%) higher. Regional house prices increased (+6.9%) during 2020, which is more than 3 times the return for the combined capital cities. The number of properties sold in 2020 was also 8% higher than 2019 despite the Covid lockdown.
The unemployment rate decreased to 6.8% which was better than expected, and the Reserve Bank of Australia (RBA) left the target cash rate at 0.10%p.a noting that wage grow remains very low. The Australian dollar appreciated against all major currencies, including the US Dollar (+4.7%), Japanese Yen (+3.5%), Euro (+1.5%) and Pound Sterling (+2.1%). Economists are expecting the dollar to move higher throughout 2021 which would be welcome news for those wanting to go overseas when International travel resumes.
December was a good month for commodities. Iron Ore increased by (+21.5%) thanks to robust demand from China and continuing production issues from Brazilian mines. The Oil price increased (+8.8%) and Gold prices increased (+6.7%).
After such an incredible year which included the worst global pandemic in a century, the end of Donald Trump’s reign, ongoing global tensions with China and the UK’s successful completion of Brexit – the total return from the Australian share market for 2020 was a surprisingly positive (+1.7%).
To say it was a volatile year would be an understatement. The Australian share market hit a record high in February then plummeted (-37%) in 30 days. The unemployment rate hit a 20 year high and Australia had its first recession in 3 decades, yet it still finished December higher than it started the year, and only 7% lower than the record high reached in February 2020.
The place to invest was technology. In Australia the technology sector was up (+58%) for the year, more than tripling the full year return of the next-best performing sector, Materials (+18%). The Energy sector still remains the worst effected with the 12 month return sitting at (-27%), although the Oil price was only down (-22%) for the year.
The world share market index was up (+14%) for the year, so despite largely containing the virus, Australia significantly underperformed compared to the rest of the world in 2020. In fact in the past 10 years the Australian share market has only outperformed the International share market twice, with even the New Zealand share market proving a far better investment. The New Zealand index was up (+15%) in 2020 and their benchmark has more than quadrupled since the end of 2011, and more than doubled since 2015.
2020 was certainly a year of resilience and proved that share market performance is not always tied to economic performance. Businesses learnt how to make money in difficult times and investors were willing to look at Covid as a one-time event rather than something fundamentally wrong with the economy. In good news for the super-rich a recent Oxfam report highlighted only 3 of the 50 richest billionaires saw their fortunes shrink in 2020, unfortunately the same can’t be said for those at the bottom of the wealth ladder. Inequality is expected to increase in almost every country in the world for the first time since reporting began.
As for 2021, the general consensus is that things will improve. Unemployment will fall, international travel will resume, the vaccine rollout will happen and work from home will become a more permanent fixture for many. This has many economists predicting the share market will also recover in 2021 with a double digit return. Interestingly at the start of 2020 the general consensus was for positive single digit returns, although I doubt anyone would have predicted what unfolded in the past 12 months to get us that result.