BlueRock Investment Committee Market Update (21/12/2020)

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Lots of big news and action last week, but don't worry we will be focusing on the Investment Committee outlook and economic news whilst sparing you more noise about Gamestop.

Firstly, the most controversial news last week was the RBA announcement to fix the cash rate at a record low of 4 years, along with a further purchase of $100 billion in bonds. With the Australian position in such a favourable position already, combined with such a stimulatory announcement from the RBA there is some increased chance of inflation and potential for a further equity rally. The BlueRock Investment Committee is treating this seriously and we are increasingly wary of already expensive sectors pushing into “bubble” territory. This week we have had significant discussions around how to position portfolios to partake in further growth while avoiding areas of expected increase in volatility.  Further adjustments were made to the portfolios last week as a result, which is detailed below.

Increasingly, the name of the game is to gain liquid exposure to “growth” investments with less stretched valuations but may benefit from the rising tide in the domestic market. Sectors towards the right hand side of the chart below demonstrate potential areas for such investment.  

Global markets broadly rose off the back of positive earnings announcements. Less encouraging is the softening of Purchasing Managers Index (PMI) data which provides an indication of economic activity and business confidence. The previous week we received weaker PMI data specifically in the UK and Europe. Considering this data reflects activity over their winter, where the effects of Covid typically increase, this is not a concern in itself, however we will monitor closely if this negative trend continues through their approaching summer.  

On a final and important note, the Australian dollar remains strong and near its 5-year highs and has been underpinned by positive Australian trade balance surplus data released this week. As the domestic economy looks robust, we may see further strengthening of the dollar however the Investment Committee predicts we are nearing its upper range. We anticipate that a global decrease in activity could see a notable reversal in the strength of the Australian dollar. In light of this, we aim to limit the potential impact of a weakening dollar and a potential reduction in global activity by moving to unhedged positions and slightly increasing our US dollar exposure in the portfolios.

Did you know?
The origin of the BlueRock name is a mash-up of the founders two favourite things.
Through a mutual love of the Carlton football team and Dwayne 'The Rock' Johnson, a firm was born!