FNArena’s Weekly Insights – March 01 2021
A February For The Record Books
By Rudi Filapek-Vandyck, Editor FNArena
It has been a while since a corporate results season in Australia was mostly about corporate performances. The last time this happened was, according to my memories, February 2018.
Back then, investors weren’t so sure whether strong share price performances for companies including Altium and Appen could be maintained, but their financial market updates proved the doubters wrong.
Every subsequent season since has been overshadowed by macro forces, albeit to different degrees and mostly through attempts to rotate away from Quality and Growth into Banks, Value and Cyclicals.
The February 2021 season has proved a little different. That oft attempted, but seldom sustainable market rotation into banks, miners and energy producers is by now five months old, and it has been solidified throughout the month with investors unambiguously showing their preference for share market laggards that stand to benefit from the rollout of vaccines globally and the re-opening of regional and international borders.
At times it was almost heartbreaking to observe how strong performances from covid-winners would receive no reward, at best, while for companies such as Webjet ((WEB)) and Flight Centre ((FLT)) it almost didn’t matter what financial results were being released as investors are keeping their attention firmly focused on the fact that global borders will re-open, exact timing unknown.
In 2021, the return of broad-based optimism about the economic recovery ahead has started to translate into higher bond yields which, in return, have looped back into a weakening US dollar (stronger AUD) and a universal approval for investors to again start accumulating shares in small mining companies, banks, oil & gas producers, steel, construction and building materials, contractors and mining services providers, and other industrial cyclicals.
The sharp rise in bond yields was the big shadow hanging over February this year. Not only did it provide too big a headwind for most covid-beneficiaries, it also reignited market debate whether unprecedented stimulus and government support programs are heralding the return of consumer price inflation, which would justify even higher yields.
Central bankers joined the debate. They said: no, it doesn’t. The alternative view is that bond yields fell in 2020 because of the global pandemic and as market optimism grows, those yields are simply pricing out the virus impact. On the first Monday of March, the RBA used its money printing power to put a halt to what risked becoming an unruly trend that could well grow beyond control. The Fed had been signalling similarly on the final February Friday.