Sovereign Wealth Partners and InvestSense Pty Ltd
Markets were broadly higher throughout the month, and in particular the domestic market gained a steady +3.7%. The release of subdued inflation data in the month was welcomed by the domestic market, which had been seemingly concerned about the possibility of a stimulus-driven inflation spike leading to future policy tightening.
US markets were up by around 4% for April, Europe by 2-3% and Asia down slightly. Japan was the worst performing market (down by almost 4%) with many manufacturing companies being amongst the first to feel the effects of an industrial slowdown in China.
Commodity markets on the other hand appear to have turned their attention Westwards and found more grounds for optimism in the Biden administration’s spending plans. Most commodities were up another few percent bringing the April tally to 5-10%. This is on top of the 10-20% rise seen in the first quarter. Corn and lumber in particular were up 30% and 50% respectively in April alone.
Perhaps the best thing though for investors in April was the fact that bonds were also in positive territory and only softened very slightly last week amidst a barrage of positive data that could easily have caused a spike in inflation expectations. For now, at least the market is very much looking through this spike in economic activity and inflation but what comes next is far from certain.
This begs the question, what is the market seeing for the rest of the year, having fallen slightly on the news that GDP in the US grew at 6.4% on annualised basis and exceeded expectations. Our focus remains very much on US economic activity as that is where all the fiscal action is. There is an increasing sense that this will set the tone for markets for the next decade, but it remains an open question whether we will see another roaring 20’s or a 70’s style boom and bust.
Another asset class that we are doing some more research on is commodities. Australian investors are naturally overweight commodities through our exposure to iron ore but it is clear that there is a lot going on in the commodity space and potential opportunities for active management as well as broad exposure to a cyclical recovery that could be less interest rate sensitive than the stock market. For instance, lumber prices and corn have been the best performers this year but corn has just got back to where it was in 2014 levels while lumber is almost 200% higher than it has ever been and is starting to look like a bit of a bubble.