Australia’s share market is set to reach an all-time high by early 2021 despite the coronavirus recession.
The S&P/ASX200 and the broader All Ordinaries index reached new nine-month highs on Wednesday afternoon after Oxford University and AstraZeneca announced they had a vaccine that was up to 90 per cent effective and could be stored safely in a standard fridge.
The news had also pushed the American Dow Jones Industrial Average above the 30,000 mark for the first time ever during overnight trade.
IG market analyst Kyle Rodda said the Australian market was likely to reach an all-time high in March 2021 as a vaccine led to a reopening of borders.
Australia’s share market is set to reach an all-time high by early 2021 despite the coronavirus recession. The S&P/ASX200 and the broader All Ordinaries index reached new nine-month highs on Wednesday morning after Oxford University and AstraZeneca announced they had a vaccine that was up to 90 per cent effective and could be stored safely in a standard fridge
‘If you take a two or three per cent positive return every month for the next three to four months, by March next year, we potentially have reclaimed the losses of the pandemic,’ he told Daily Mail Australia on Wednesday.
Why the share market recovery is remarkable
The Australian Securities Exchange is within striking distance of the February 2020 reached just before the World Health Organisation declared a COVID-19 pandemic
The benchmark S&P/ASX200 was just six per cent below the record peak as of Wednesday morning
The share market’s recovery in just one year is remarkable considering the two major crashes of 1987 and 2008 took a decade to recover from
Before the 1987 crash, the All Ordinaries peaked at 2376.88 on September 21, 1987. Following the Black Monday crash of October 19, 1987, it then plummeted 49.2 per cent by February 10, 1988 and didn’t surpass old peak until December 27, 1996
During the Global Financial Crisis, the S&P/ASX200 peaked at 6828.7 points on November 1, 2007. By March 6, 2009 it dived by 53.8 per cent to 3145.5 during the global financial crisis, taking another decade to hit previous record
‘If we continue to see that pick-up and we continue to get good news on the vaccine, the ASX200 ought to perform very well on that basis.
‘It does tend to be a little bit more sensitive to changes in the business cycle.’
Fat Prophets head of research Greg Smith said the resources and banking sectors were set to drive a share market resurgence, and a return to healthy shareholder dividends.
A perfect storm for the Aussie market next year
‘We could have a perfect storm for the Aussie market next year,’ he told Daily Mail Australia.
The benchmark S&P/ASX200 is just six per cent off the record high reached in February 2020 before the World Health Organisation’s declaration of a coronavirus pandemic caused the market to plunge by a third in just three weeks.
The Australian Securities Exchange index was almost one per cent stronger during early trade on Wednesday.
Should the March 2021 prediction materialise, the Australian share market would have taken just one year to recover from a crash.
The Global Financial Crisis took almost 12 years to recover with the November 2007 peak in the ASX200 not being surpassed until July 2019.
The Black October crash of 1987 took nine years to bounce back from.
Mr Rodda said the speedy share market recovery had not happened before, as massive government stimulus programs boosted asset prices.
‘It’s historically unprecedented,’ he said.
‘But it makes a lot of sense when you look at the way that economic policy makers look to manage the economy now and the vital role that asset markets play – you’re defending the savings of an entire generation.
‘The stock market, probably nowadays, has a greater effect on economic strength because of its wealth effects.’
Stronger global economic growth is also propelling crude oil prices, which made oil and gas stocks like Woodside and Oil Search particularly good value, following a surge in crude oil prices back to eight-month highs
Oil and gas
Stronger global economic growth is also propelling crude oil prices, which made oil and gas stocks like Woodside and Oil Search particularly good value, following a surge in crude oil prices back to eight-month highs.
Oil Search: $3.84
Nine Entertainment: $2.35
Rio Tinto: $103.99
‘Anything with oil and energy exposure is outperforming and if we continue to see the broader market dynamic continue into next year, that will continue to outperform,’ Mr Rodda said.
Mr Smith said liquefied natural gas exports to Asia made Woodside and Oil Search particularly good investments, and predicted a 20 per cent for both companies within the next 12 months.
‘Woodside and Oil Search are both well-positioned – the story that was there pre-COVID – which is the rising demand for energy in the Asian region,’ he said.
‘They’ve got great LNG projects coming along – fossil fuels are going to be with us for decades – they’re very well positioned.’
Since March, Woodside’s share prices has risen from $15.27 to $23.55.
Oil Search has gone from $1.83 to $3.84.
Iron ore miners
China’s trade sanctions against Australia for speaking up about the origins of COVID-19 have done nothing to diminish demand for iron ore exports, which hit a monthly record high of $10.9billion in October.
Mr Smith said mining giants BHP and Rio Tinto were better placed than billionaire Andrew Forrest’s smaller Fortescue Metals Group to capitalise on China’s insatiable demand for the commodity used to make steel.
China’s trade sanctions against Australia for speaking up about the origins of COVID-19 have done nothing to diminish demand for iron ore exports, which hit a monthly record high of $10.9billion in October. Mining giants BHP and Rio Tinto are recommended
He predicted Australia’s two big miners would enjoy a 15 per cent share price increase, with China buying 80 per cent of Australia’s iron ore exports.
‘BHP and Rio can go a bit higher in 2021,’ Mr Smith said.
Nine Entertainment Co’s share price has more than tripled from 84 cents in late March to $2.36 as of Wednesday
‘Iron ore, a big feature for both of them. China needs iron ore, they’re doing the rebuilding.’
BHP has edged up from $25.20 in March to $38.92 while Rio Tinto has climbed from $77.40 to $103.99.
Television and radio group Nine Entertainment Co – which owns streaming service Stan and also has a 60 per cent stake in online property group Domain – has staged a remarkable recovery since the share market bottomed out in March.
Its share price has almost tripled from just 84 cents in late March to $2.48 as of November 13.
While the price has since moderated to $2.36 as of Wednesday, Mr Smith saw the share price reaching $3 next year – a 28 per cent surge – as the advertising market recovered.
‘Traditional advertising markets are picking up because things haven’t worked out as bad as everyone maybe thought,’ Mr Smith said.
‘Nine’s had a good run, it’s a high-quality media player.’
Stan, which Nine owns, did well during the pandemic as lockdowns, particularly in Melbourne, kept people at home and now the rights to broadcast the rugby
Stan did well during the pandemic as lockdowns, particularly in Melbourne, kept people at home and has since won the rights to broadcast rugby union.
‘They’ll play more catch-up with Netflix, so it’s a great business,’ Mr Smith said.
Australia’s big banks also have more room to grow as more struggling borrowers were able to repay their mortgages again, even as JobKeeper wage subsidies expired at the end of March.
‘We’re starting to see a bit of interest come back into the financial sector,’ Mr Rodda said.
‘We’re seeing signs of a broader-based recovery: households on balance are going to be able to endure that hand-off from the government support into the economy to the economy standing on its own two feet.
Australia’s big banks also have more room to grow as more struggling borrowers were able to repay their mortgages again, even as JobKeeper wage subsidies expired at the end of March
‘The banks have benefited from the perception that the credit risk to the households has diminished considerably.’
That bodes well for the Commonwealth Bank, Westpac, NAB and ANZ.
Dutch financial services group Rabobank is recommending agriculture futures with wheat, soybeans and corn prices set to soar in 2021 as the return of the La Nina weather pattern brings more rain.
Prices of cotton, coffee, cocoa and sugar were expected to decline, however.
The sharp increase in people working from home has hit demand for coffee from cafes, affecting global coffee prices.
Agribusiness Elders has seen its share price steadily climb from $6.09 in January to $11.87 on November 13, although it has since moderated to $10.33.
The Australian share market was firmer at lunchtime with the ASX200 up 0.75 per cent, or 49.8 points, to 6693.90, the highest level since the February 20 peak of 7,162.50.
The ASX200 finished the day up 0.59 per cent, or 39.2 points, to 6,683.30.