At the start of year, the investment team had some fun looking to the year ahead and predicting the future. So, we decided to revisit the Nine predictions from 2021 and see how we performed on our predictions.
Prediction 1
Despite positive news and economic data, the ASX is flat to slightly down in 2021
Not a strong start on our predictions. We certainly got the first part correct, there was then and is now plenty of good economic news. Our expectation was that because 2020 saw such a strong rebound, including strong performance post vaccine news in November, that much of the good news was already priced into expectations and subsequently leading to sideways moves across the board.
In fact the ASX 200 returned a respectable 8.1% year to date, which is not far off the long term average. In fact, if we block out 2020 and some of 2021, you wouldn’t even notice the 30% sell off and recovery with the 5 year trend line returning to its trajectory.
Prediction 2
2021 continues the recovery in the commodities cycle
Our original article noted that hard commodities outside of oil had a great 2020. In 2021, the result was mixed, with iron ore falling off a cliff and oil recovering strongly. Commodities as a whole have recovered to levels seen only once in the last 30 years, which was during the post Global Financial Crisis commodity boom in 2012. This is clearly shown in the following chart, produced by the RBA.
Prediction 3
Third tier Buy Now Pay Later stocks suffer substantial declines
This prediction we got spot on. In the last year, the shine has certainly come off the Buy Now Pay Later, which saw many subscale players enter the market following extreme exuberance in the sector, a key trait of bubbles.
The worst performers were Laybuy (off 84%) and Splitit (off 80%) with only Afterpay ending in positive territory (only just, and perhaps only thanks to the likely merger with US payments giant Square).
Prediction 4
China restricts Chinese Students and/or Tourists coming Australia
There has been no official ban from China on tourists or students, however, our borders have also remained closed all year. Chinese students at Australian universities have been able to continue their studies remotely and while China’s borders have remained steadfastly locked, it remains to be seen if Chinese people will be released as other borders open for tourism or education.
Prediction 5
Inflation once again disappoints
It is too early to tell whether this prediction was on the money or not yet. While inflation has been a hot topic at the tail end of this year, it has been resolved whether the higher levels of inflation seen, particularly in western nations, will be transitory (i.e. short lived) or permanent. Why we believe this is not resolved yet is because, although Australia recorded a consumer price increase (CPI) of 3% for the quarter ending September 2021 for the second quarter in a row, annualised CPI change over the past 2 years was still only 1.8%, still below the RBA’s 2-3% inflation target range. So 3% inflation in 2021 is merely a reversion to the previous trajectory and it may still be another 12 months before it is clear what trajectory inflation remains on.
Prediction 6
Joe Biden steps down as US President and Kamala Harris is Sworn In
We had some fun with this prediction and was admittedly a low probability that President Biden would step during his first year of President. If he steps down before the end of his term though, we’re ready to revisit this prediction.
Prediction 7
Scotland to hold another exit referendum and propose to join the EU
While this prediction did not come to pass the conversation is ongoing because a majority of Scots voted for the UK to remain in the EU, potentially giving legs to a renewed Scottish independence movement. However, given the UK has now been outside the EU for almost a full twelve months the momentum may indeed be dwindling.
Prediction 8
Tokyo Olympics to be postponed again
The team are big sports fans just like many Australians, so we were quite happy to get this prediction wrong. While covid-19 did indeed present many challenges, it is a testament to the tournament that the Games were able to be held. The Olympics have endured many disruptions such World Wars and political boycotts, and in years to come we will remember the 2020 Tokyo Games as the one with all the masks.
Prediction 9
China places restrictions on Australia’s iron ore, replacing the supply with mines, developed in secret
Even though China is looking into other means of acquiring iron for their steel production such as recycling scrap and investing in Guinea’s Simandou mine, it has not been possible for the country to reduce its reliance on our iron ore just yet. That said, just this week it was reported that China has ramped up its intentions by ramping up its own production by 30%, as well as investing in overseas mines and improving scrap recovery. So while it didn’t happen this year, it could still be on the cards for next year
There we were few close to call on our predictions, but overall we were pleasantly pleased looking back at our predictions.
Next month, we will be making our predictions for 2022, watch this space!
Written by Oracle Investment Management team
Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.
