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Economics & Markets

Key positives about Australia in 2021 for investment markets

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

We’re now six weeks into 2021, and predictions that Australia will continue to fare better than its global counterparts are holding up. Here, we revisit key positives about Australia in 2021, which could have an impact on investment markets.

In recent months, we have spoken a lot about Australia’s relative success in handling the pandemic. This has a significant impact on the ability for local markets to recover, and is seeing the Australian dollar pushed to recent highs. We continue to see several key reasons that Australia remains in a relatively good position this year.

1. Better virus control compared to other countries

Since the beginning of the pandemic, over a year ago now, Australia has been among the best in the world in its control of COVID-19.

Controlling the virus is crucially important for public health reasons. It’s also an important economic imperative because it affects mobility – basically, the more under control the virus is, the more freely people are able to engage in ‘normal’ life.

You can see in the chart below that economic activity has been gradually tracking upwards, after a big dip when the first round of lockdowns first hit.

Source: Bloomberg, AMP Capital
Source: Bloomberg, AMP Capital

2. Better targeted stimulus than most

Monetary and fiscal stimulus are crucial to keeping the economy breathing, and staving off a depression. Australia has had substantial stimulus injections relative to global counterparts that has gone directly to households and businesses, rather than loans and guarantees which rely on banks making loans to stimulate economic activity. See the chart below for a comparison of where Australia sits in relation to other countries.

Source: AMP Capital
Source: AMP Capital

Australia is in a good position to benefit from our biggest export market – China – having a strong recovery from the pandemic which is good for commodities demand. China has now returned to its pre-COVID levels of growth, which is the strongest result of OECD countries. Further, many of Australia’s Asian trading partners are also doing a relatively good job of controlling COVID-19. There are of course risks to consider here – including that the virus can re-emerge in any country and prompt lockdowns and Australia/China trade tensions.

What are the risks?

There are several risks to consider during a pandemic – one of the first and foremost, as mentioned above, being that the virus can re-emerge and prompt lockdowns. However, we think Australia is overall heading in the right direction for recovery, albeit with a challenging and bumpy road ahead.

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Diana Mousina, Economist - Investment Strategy & Dynamic Markets
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

 

This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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