2020/21 Year in review: Australia

2020/21 Year in review: Australia

Just recently in June, I celebrated the 18th year anniversary of the Fidelity Australian Equities Fund. I have always managed the Fund for evolution rather than a revolution, and this has served us extremely well, particularly through crises like the COVID-19 pandemic.

While the impact of coronavirus on people’s lives has been much more negative than originally thought, the impact on the economy and markets has been much more limited than expected.

Australia was relatively resilient over the last year and I believe it will remain a preferred geography in which to invest, work and study. We saw the acceleration of existing trends such as e-commerce, digital delivery of food and beverages, cashless transactions, work from home, and a preference for active versus formal wear. These trends have expanded the universe of investment opportunities as more innovation and business models have come to the market.

The divergence we are seeing between the severity of the pandemic and the impact on the economy is due to government and central bank stimulus. Both responses have been extraordinary and created strong tailwinds behind the economy and asset prices. However, a full recovery will be dependent on the vaccination rollout and the re-opening of national borders.

As the economy grows and demand strengthens, inflation is creeping up. However, I believe that the recovery will need to be sustained for a couple of years, for demand to reach pre-pandemic levels and therefore it will take some time for inflation to reach a meaningful level.

We have seen central banks try to keep interest rates as low as possible for as long as possible to ensure strong growth. High growth and low interest rates should also help with the natural repayment of government debt, which has significantly increased through the pandemic.

Our own Reserve Bank of Australia (RBA) has also highlighted that they do not believe they will have to significantly increase interest rates until 2024 – which is when they think we will start to see real wage growth. It is fair to say that the market does not believe them, and has priced in higher interest rates sooner.

My view is that interest rates will go up, but because of the current temporary inflation, we’ll see volatility increase and interest rates take on a shark-tooth type of trajectory. I am much more in the longer-term camp that says official interest rates will increase over an 18-month to two-year period.

The recovery is well underway, and I think in five years’ time we will look back on this period as having been an excellent time to have invested in the equity market for the long term. Having said that, investors should not expect this to be without volatility along the way.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (‘Fidelity Australia’). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements (‘PDS’) for the fund(s) mentioned in this document before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. This material may contain statements that are “forward-looking statements”, which are based on certain assumptions of future events. Actual events may differ from those assumed. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website. The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/ or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Any comments or statements made are not necessarily those of Fidelity Australia. All e-mails sent from or to Fidelity Australia may be subject to our monitoring procedures. E-mail communications cannot be guaranteed to be timely, secure, error or virus-free. The sender does not accept liability for any errors or omissions which arise as a result. © 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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