- Despite the escalating case load, hospitalisation rates from Omicron in the UK and South Africa indicated a lower risk of severe infection form the variant. This, together with high vaccination rates, supported developed market shares to post solid gains in December. Australian shares returned 2.7% and international shares (hedged) 4.0% and over 2021 a very healthy 17.5% and 23.9% respectively.
- Ongoing pressure in emerging markets saw a -0.6% return for the month. The underperformance of Chinese shares has significantly contributed to the notable underperformance of emerging market shares when compared to developed market shares in 2021.
- Fixed income performance remained subdued in the month as markets continued to process rising inflation and less easy policy from central banks. Australian fixed interest returned 0.1% and International fixed interest -0.4%.
Inflation risks sees central banks diverge as Fed signals firmer policy
- Minutes from the US Federal Reserve meeting highlighted concerns that supply chain bottlenecks and labour shortages have contributed to rising inflation which could “last longer and be more widespread than initially thought”.
- Central banks looked to be diverging in the month, with some tackling surging inflation and others continuing to focus on maintaining demand in the face of economic disruption from the Omicron variant.
AUD rises along with oil prices
- The Australian dollar pushed a little higher as the RBA indicated that rising Omicron cases were unlikely to derail the current financial recovery. However, over the year the AUD is well down on the USD.
- Oil prices rebounded following reports that Omicron may be less severe than previous strains, easing concerns about a demand hit.
Major asset class performance (%)
| Asset classes | 1 month | 12 months | 5 years (pa) |
| Australian shares | 2.7% | 17.5% | 9.9% |
| International shares (hedged) | 4.0% | 23.9% | 14.0% |
| International shares (unhedged) | 1.7% | 29.6% | 15.1% |
| International emerging markets (unhedged) | -0.6% | 3.4% | 9.8% |
| International small companies (unhedged) | 1.0% | 22.9% | 12.2% |
| Global listed property | 6.4% | 31.3% | 7.3% |
| Cash | 0.0% | 0.0% | 1.1% |
| Australian fixed interest | 0.1% | -2.9% | 3.4% |
| International fixed interest | -0.4% | -1.5% | 3.3% |
Source: JP Morgan and IOOF, 31 Decemeber 2021.
Indices: Australian shares: S&P/ASX 300 Accumulation | International shares (hedged/unhedged): MSCI World ex Australia Net | International emerging markets: MSCI Emerging Markets Net in AUD (unhedged) | International small companies (unhedged): MSCI World ex Aust Small Cap | Global listed property: FTSE EPRA/NAREIT Developed Rental Index ex Australia (hedged) | Cash: Bloomberg Bank Bill | Australian fixed interest: Bloomberg AusBond Composite 0+ Yr Index | International fixed interest: Barclays Global Aggregate Bond Index (hedged).
Please note: Past performance is not indicative of future performance.
Currency
| Exchange rates | At close on 31/12/21 | % change in 1 month | % change in 12 months |
| AUD/USD | 0.73 | 1.91 | -5.60 |
| AUD/Euro | 0.64 | 1.65 | 1.46 |
| AUD/Yen | 83.68 | 3.75 | 5.30 |
| Trade weighted index | 61.10 | 1.50 | -3.63 |
Source: Bloomberg and IOOF, 31 December 2021. All foreign exchange rates are rounded to two decimal places where appropriate.
Please note: Past performance is not indicative of future performance.
Important information: This document is issued by IOOF Investment Services Ltd (IISL) ABN 80 007 350 405, AFSL 230703. IISL is a company within the IOOF Group which consists of IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate. This document contains factual information only and is based in part on information obtained in good faith from third party sources. The information in this document is current as at 11 January 2021. While this information is believed to be accurate and reliable at the time of publication, to the extent permitted by law, no liability is accepted for any loss or damage as a result of reliance upon it.
Source: https://investmentcentral.ioof.com.au/home/home-article/Market-Watch-December-2021
