Please see below the latest Aspirations Insights:
There are encouraging signs that the global economy is emerging from the COVID-19 pandemic in better shape than was thought likely nine months ago. However there are significant disparities in valuations in the share market which continue to provide opportunities for identifying and investing in companies which are undervalued by the market, but possess significant upside potential.
During 2020, share prices were driven by an extraordinary combination of factors. Some sectors, such as many retailers, benefitted greatly from the short-term sugar hit of COVID-19 income support, while other sectors – such as hospitality, hotels, tourism, and international education – experienced dramatic falls in demand and activity. Investment markets experienced extremely high levels of volatility as markets stressed about the likely effects of the COVID-19 pandemic.
The unprecedented government-directed shutdown of companies and industries this time last year heavily affected many businesses and as a result investors sold off “the good, the bad, and the ugly” indiscriminately. Since mid last year, the performance of the share market was driven by strong interest in many speculative or ‘concept’ stocks many that make no profit. The share prices of these companies are valued far more highly than many well-established, good quality companies with proven track records of generating strong cashflows and dividends. We believe many non profit making shares that have boomed in the past year will have a day of reckoning in the years to come. This is a good reminder that caution and patience is needed when investing.
See the chart below for 1 year share market movement:
COVID – 19 Vaccine
As mentioned in previous insights, COVID-19 remains the biggest investment threat and the vaccine is key. If we are to return to some form of ‘new normal’ COVID needs to have a dramatically reduced its impact on the global economy. Thankfully vaccination programs are well underway world wide. See the chart below with current progress:
We remain confident in our investment process, whilst the short term outlook will be uncertain, our three year investment outlook remains very good. Aspirations Wealth continues to focus on quality investments which in our view are resilient businesses which can continue to generate healthy cashflows.