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MB Fund: August 2021 performance

www.macrobusiness.com.au
7 min read
fairly easy
August was another strong month for the stock market. Our tactical portfolios performed well. Growth led the way up 2.9% over the month. We spoke last month about selling Australian stocks into the rallies, believing there will be a slow down in the next few months led by China and so far in September that
has proven to be the case.

In a market distorted by various authorities, the problem is that if both central banks and governments revert to stimulus, then the market will probably go higher. Our view is that governments won't act quickly this time. The US central bank has been talking tapering, so it needs to reverse course. Which is probably going to take time. China is trying to slow the property developers, but there are signs that it may have gone too far too quickly with a range of warning signs.

Net effect: caution is the byword. But we are watching for signs that the delta outbreak will give enough cover for governments and central banks to resume stimulus.

We expect international equities provide some protection from a growth slowdown. We expect the Aussie dollar to continue to fall. This will hedge the downside under the worst scenarios while still providing some upside in the better ones.

COVID-19

There are two main countries to watch. The UK is the primary test case. What happens when a (mostly) vaccinated population opens up without regard to the virus. Case counts are up. Hospitalisations are up but nowhere near prior levels. Vaccinated people appear well protected from the most negative outcomes.

The US is effectively experimenting with 50 states having varying lockdown rules, vaccination levels and economic support. Clearly, US vaccination levels are not high enough. However, cases look to have peaked and hospitalisations are trending down.

The most interesting factor is going to be the effect on consumption. At some stage, countries will treat the COVID as endemic and return to more normal consumption patterns. US restaurant bookings are only slightly down vs 2019 baselines. Germany, the UK and Ireland table booking are all running significantly above 2019 levels. Consumers look to have reached a point of resilience with respect to the virus.

Asset allocation

Stock markets are expensive. Debt levels are extremely high. Earnings growth has…
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