Australia's great economic rebound is coming.
In fact, it's already underway.
But don't expect smooth sailing.
Not for the economy. And not for the S&P/ASX 200 Index (ASX: XJO).
But that doesn't mean there won't be great ASX investment opportunities in 2021.
Keep your eyes on the horizon
If you've spent any time out at sea, you'll know one of the best ways to avoid seasickness is to keep your eyes on the horizon. That's because the swells will move the boat you're on, but the horizon stays constant. And our brains are wired to appreciate that sense of consistency.
If you're a long-term investor, the horizon is your goal. And you're better off ignoring the daily and weekly ups and downs the share markets will throw your way.
Ronald Temple is the head of US Equity at Lazard Asset Management.
Envisioning a choppy transition period over the next 6 months as developed nations begin to shift out of the pandemic investment environment that's dominated so much of 2020, Temple recommends investors take that long-term view.
He adds that investors should focus "on bottom-up fundamentals for each individual security, while also avoiding the instinct to move too far out on the risk curve."
Temple points to two major forces in a sort of tug of war with share prices, one pushing them higher the other lower:
On the positive side, the US election has passed with a market-friendly outcome and three COVID-19 vaccines appear to be within weeks of initial distribution, with more likely to follow. Typically, these events would be the signal investors need to shift out of defensive work-from-home beneficiaries into cyclical recovery plays.
However, major developed countries across the Northern Hemisphere are facing new record levels of COVID-19 infections, spurring new economic lockdowns and increasing the risk that many companies, particularly small businesses, might not make it to the other side of this pandemic.
Investors face a timing conundrum, indicating yet again that it is likely to be darkest before the dawn.
In Australia, that dawn looks closer than it does for most of Europe and the Americas.
Consumers ready to do the heavy lifting
Australia, alongside a handful of other nations like New Zealand, has been exceptionally successful at squashing the coronavirus spread.
While those efforts saved thousands of lives and many more illnesses, the months of severe lockdowns, particularly in Victoria, delivered plenty of economic pain.
But, provided Australia manages to keep the virus in check until vaccines are widely distributed, that pain could fade faster than hoped heading into 2021.
Shane Oliver is the head of investment strategy and chief economist at AMP Capital. He expects Australia's economy will see another quarter of solid recovery to end the year. However, with Europe and the US struggling with record infection rates, their economies are likely to slow or contract with renewed lockdown measures.
Addressing the Federal Government's Mid-Year Economic and Fiscal Outlook, due out later this week, Oliver says (quoted by the Australian Financial Review):
[Australia is] likely to see an upgrade to the growth outlook and a downgrade to the budget deficit projections reflecting stronger revenue flows and slightly less emergency spending than expected in the Budget… All things being equal this is relatively positive for the Australian share market and the Australian dollar.
Australia's economic recovery into 2021 may be "uneven and bumpy", as RBA governor Philip Lowe cautioned earlier this month, but consumers don't seem bothered.
Consumer confidence in December is at 10-year highs, having climbed 4-months in a row.
Household savings levels are also at multi-year highs. And there's plenty of pent-up demand from consumers who haven't been able to spend on travel, dining out, or indeed shop in many brick-and-mortar locations.
With that in mind, the final weeks of December are expected to see a surge in retail spending.
According to Bloomberg:
The average Australian is expected to spend A$893 ($675) on Christmas this year for a cumulative total of A$17.3 billion, according to a late November survey by Finder.com – a comparison website — with greater spending on gifts than the 2019 survey signaled…
Analysis from economists at National Australia Bank Ltd, using their Cashless Retail Sales Index, suggests that national retail sales rose 3% in November from the previous month.
ASX 200 retailers cheer on the reopening
The reopening in Australia and New Zealand is welcome news to everyone. But few will be cheering louder than the owners and operators of some these nations' largest shopping centres.
Like Scentre Group's (ASX: SCG) shareholders.
The retail property group owns and operates Westfield shopping malls across Australia and New Zealand. So, when the viral lockdowns saw shoppers forced to stay at home, Scentre's share price collapsed.
From 12 February through to 24 March, Scentre Group's share price dropped 63%. Since that low it's rebounded 94%, leaving shares down 28% year-to-date.
In intraday trading today, Scentre's share price is edging higher, up 0.2% at the time of writing.
