Market Review

March 2021

Global share markets were positive again in March. The Australian share market up 2.4% while substantial gains in Europe in particular saw international shares rise by over 5% overall in unhedged Australian dollar terms. The Australian fixed income market also delivered a positive return in March, unlike last month, as the trend of rising bond yields was halted (at least temporarily). Cash interest rates remain around zero and are expected to stay there for many months given the comments from the Reserve Bank of Australia (RBA) that they remain on hold. The overall positive market sentiment was driven by the continued vaccine rollout in the US and UK and the potential for growth in those economies in 2021.

Vaccine rollouts boost markets

The rollout of the various Covid-19 vaccines across the globe was a key contributor to strong performance over March as well as the quarter overall, with the US and UK notably advanced compared to other major markets (see chart below). Although Europe overall is lagging with respect to vaccinations, share market performance was strong at close to 8%, with Germany gaining 9%. This strong European market reflects a rebound in its relative underperformance over the past year. US and UK shares rose by 4.4% and 4.2% respectively. A rise in the US dollar over the month also assisted returns for Australian investors.

In Australia, it appears that the supply of vaccine has been the main reason for the slower rollout, but this is expected to improve.

Stimulus package clears US Senate

Another tailwind for markets was confirmation of the Biden administration’s US$1.9 trillion recovery package, along with mention of even more government spending on infrastructure in the years ahead. Confirmation of the package in early March was expected, and was taken positively by markets as it will boost job growth and the overall US economy. Total spending under the stimulus package is approximately 9% of annual gross domestic product (GDP), a measure of yearly economic output, so the effect on manufacturing and services will be quite significant.

One concern remaining in markets is the impact of such large government spending on future inflation. The US Central Bank targets inflation at 2% p.a. and currently the market is expecting inflation to reach this level over the next year, with a short-term spike in the June quarter due to the low starting point from June 2020. If inflation was to stay elevated past June this could see bond investments perform poorly as yields rise, causing capital losses. However, for now the Central Bank has been playing down inflation concerns, stating that any pick-up in inflation will be transitory and there are no plans to increase interest rates before 2023.

China underperforms

Policy and regulation worked against emerging markets during March, with Chinese shares falling by more than 5% due to concern over the withdrawal of stimulus and a general tightening of lending by the banks. Chinese internet giant Tencent fell by close to 8% over the month but remains more than 60% higher compared to the end of 2019. Emerging market shares tend to be more volatile than developed markets, but the recent pullback in share prices makes their value more attractive looking forward. In the long-term, China’s growth is expected to remain strong which also provides a tailwind for this market.


The pace of global vaccinations remains strong in the US and UK in particular, and investor confidence overall remains positive as a result. The rollout of the vaccine in Australia will play a role in the recovery here with travel and entertainment businesses likely to benefit from the further opening of the economy. Rising global inflation is a longer-term concern, which may impact market volatility from time to time, but it is not likely to be a problem for at least a couple of years due to the spare capacity in employment. We remain optimistic with regard to share market performance as the global recovery continues.


1 Bloomberg Finance L.P
2 Bloomberg Finance L.P, EISS Super, World Bank