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As I See It: January 2021

Greetings and Happy New Year

A special welcome to clients overseas currently in lock-down and waiting to be vaccinated from the Corona-virus.  My mother who is 87 was vaccinated in the UK last week and the race is on to get global economies back to some level of normality as soon as possible.  For the historians among you, the Spanish Flu of 1920 took around 18 months to work through and was followed by the roaring 20’s of unprecedented prosperity and share market growth till 1929 (Oct 29th 1929 the US market fell 25% due to excess speculation).  With $9 Trillion pumped onto the Global Economy by Governments and minimal interest rates the current financial settings should support above average returns for both equities and residential property over the next few years.

Dow Jones history … 1920-1929

Covid Vaccination Rate to 17/01/2021

As a community, the Northern Beaches was effectively locked down over the Xmas and New Year break with 43% of a community of 250,000 being tested.  We had only just celebrated our Client Christmas Party at the Manly Skiff Club with a high proportion of our client base residing in the beaches who were quick to do the right thing and get tested.  Hopefully we can bounce back quickly as a community and if you have family or friends who have been badly effected financially and need some guidance, do feel free to refer them to us for a complementary initial consultation at info@virtueandpartners.com.au.   As usual we will use local business’s wherever possible for our commercial requirements and I remain actively involved via the Manly Chamber Of Commerce and the financial health of our community .

Overseas we were all pretty shocked at the protest in Washington to formally appoint Joe Biden as the 46th President of the United States.   It really was quite extraordinary and symptomatic of a deeply divided country and hopefully the actual inauguration ceremony next week will not be marred with violence. The Democrats took control of the Senate winning two seats in Georgia which now means they have control of all three levels of Government. Equity markets rallied strongly on this news on the bases that legislation can actually get passed without the usual haggling process and in particular a massive stimulus package can be approved early in the Biden Presidency.  There may well be some overdue additional scrutiny of the use of private information by large technology firms including Facebook and Apple which may impact on their share prices.   There are plenty of good opportunities to invest globally including sector specific ETF’s which we are encouraging at client reviews.

Below are details of the 117th United States Congress 

Source: https://en.wikipedia.org/wiki/United_States_Congress

Domestically equity markets have started the year solidly and there is a market expectation that companies will return to their normal dividend payout ratios with APRA writing to listed companies allowing them the flexibility to restart payments based on their own circumstances. This will become more apparent at the half yearly results season in February and in particular CBA’s reporting shortly. With the Labour Party now no longer looking to contest franking credits at future elections this makes higher yielding dividend paying companies extremely valuable relative to minimal term deposit rates. This financial environment is favourable for both company takeovers and new Initial Public Offerings (IPO’s) so we expect to be particularly busty over the next few months.

While the trade disputes with China bubble along, our largest export Iron Ore continues to hit new records contributing to new all-time share market highs at BHP, RIO and Fortescue and some substantial special dividends.  China now appears to be operating again at full capacity post their suppression of the Corona-virus and while relationships are clearly strained, it is mutual self-interest that should prevail over the long term.  New trade agreements in the Asian region should also assist our export efforts coupled with a renewed commitment to innovation and diversifying our markets into counties such as India.

Source: IndexMundi.com

Residential property continues its recovery from the middle of last year with most commentators anticipating a strong year ahead founded on minimal interest rates and limited stock.  Country towns in NSW are performing particularly well as people make lifestyle changes cashing in on high city prices and working at home via ZOOM etc.  The reinstatement of our skilled migration program post the Corona-virus and overseas students are critical in getting the inner city rental markets flourishing again, which should then reflect in increased property prices.   Both the Federal and State Governments are providing incentives to stimulate the housing market which is the quickest way to get an economy humming again through alternatives to large upfront Stamp Duty payments and lower deposit requirements.  This is also a good time to review your current mortgage arrangements and take advantage of some incredibly cheap options at info@virtueandpartners.com.au

So we start a new year ready for all market conditions but expecting the recovery to continue.   Both offices are working as normal with suitable health procedures for clients and welcome both existing and new clients.  There are very good opportunities at the moment to benefit from current policy settings and we stand ready to help you.   More detailed analysis on our website www.virtueandpartners.com.au 

With my best Wishes


Posted by Dr Tony Virtue, Principal


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