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Newsletter 12/2020

The John Dory from Dubai and Beyond | Dollars and Dirhams


Please note Atlas Wealth Management will be closing our Dubai office on the 23rd of December for some much needed R&R however, we will be back with vigour on the 3rd of January ready to take whatever 2021 has to throw at us! In the meantime read on for the lastest edition of

Dollars and Dirhams

Equity Markets

November broke many records for equity market returns around the globe and U.S. equity indices hit new all-time highs. The announcement that a trifecta of vaccines were effective against the virus and greater political clarity after the highly anticipated U.S. Presidential election drove risk-on moves in markets. When viewed in conjunction with the longer running themes of a better-than-expected economic backdrop and continued monetary policy support, there was only one way for markets to go, fuelling the rotation into cyclical sectors and regions.

The Australian equity market has lagged its global peers since the March low, however, a stronger performance in November (10.2%) means the ASX 200 index has scraped into positive territory for the year (0.2%). The reopening of the economy and better-than-expected economic data are painting a healthy outlook for Australia relative to the rest of the world. The higher weighting towards cyclical sectors, particularly financials, meant the local market benefited from the continued investor rotation. It’s a similar case with the more cyclically orientated markets of Europe and Japan, where equities have risen by 14.0% and 11.0%, respectively, in AUD currency terms in November.

News of multiple highly effective vaccines triggered a sharp improvement in market sentiment over the past month. While the initial hurdles of efficacy and safety have been surmounted, attention now turns to how quickly these vaccines can be approved, manufactured, distributed and administered on a large scale. Consensus is coalescing around herd levels of immunity from the vaccination process being achieved early in the second quarter of 2021.

However, case numbers have spiked in Hong Kong and Korea again, and the U.S. is facing an alarming rate of increase in COVID-19 cases, which is starting to weigh on the near-term economic outlook with the increasing possibility that the U.S. economy will contract in the first quarter of 2021. The restrictions imposed in Europe in the prior months have shown some success in flattening the curve when it comes to COVID-19, and investors seem prepared to look past the near-term risks of a shrinking economy in the final three months of the year.

The near-term outlook for developed markets outside of Australia may be challenged, but the medium-term view has brightened with the news of vaccines, broad consumer resilience in the face of economic challenges and an improving housing market. This trend will likely continue as markets factor in greater economic growth rates and an improved earnings outlook to underpin the continued cyclical rotation in equities. Meanwhile, the Reserve Bank of Australia (RBA) remains committed to low rates and has begun its bond buying scheme to limit currency appreciation and yield rises.


Property Market

Whilst the press and property commentators cheer about resurging property prices as the saying goes “one swallow doesn’t make a winter”. Volumes are still relatively light and the property market has largely been sheltered by the Pandemic fallout due to the Rental Eviction Moratorium, Home Loan Deferrals combined with other stimulus packages like the Job Keeper subsidy.

It wont be until these safety nets are moved in the 1st and 2nd Quarter of next year that we are able to determine the true extent of any damage to the sector when owners and investors are required to stand on their own two feet without any government support.

For the property market to remain healthy you need 4 key participants:

  • First home buyers
  • Principal Place of Residence
  • Investors
  • Migrants

First home buyers were probably the worst affected demographic of Australian workers with data showing that the hit that they took to their hip pocket in 2020 will defer many first home purchases out to 2022 to 2024.

For the first time in many years migration numbers will not only decrease (normally between 200,000 and 250,000 per year) but in fact will turn negative with government forecasts calling for over 70,000 people actually leaving the country.

In the latest release from the Australian Bureau of Statistics monthly Chart Park ( we are able to obtain a clearer picture of how the supply of capital is travelling when it comes to home loan growth.

As you can see from the chart below there has been zero growth in investor loans (it actually has turned negative many times) since 2018 and even though the government has loosed the reigns for the banks to start lending again after their crackdown post the Banking Royal Commission last year it takes the big four a long time to change their policy and procedures around credit.


tl_files/ABCD Newsletters/John Dory 202012/202012_JD_DnD_HousingCredit.jpg


The government and regulators have been concerned about the level of debt that Australian households have been carrying and commissioned a report that was released this year:

In the chart below from this month’s ABS Chart Pack we can get a great insight as to how Australians are managing their debt obligations and it doesn’t look good. Up until February of this year (before the Covid-19 Pandemic took hold of the world and shutdowns were implemented) approximately 20% more Australians were defaulting on their home mortgages than at the peak of the GFC!!

Then if we fast forward to June of 2020 that percentage has increased to 70% more defaults than the peak of the GFC – and this is with the above-mentioned protection measures and subsidies in place.


tl_files/ABCD Newsletters/John Dory 202012/202012_JD_DnD_Banks NPA.jpg


Property is always a lagging economic indicator whenever you have large macroeconomic events like what we are experiencing now and more transparency on the market and the viability of property as a asset class will become more apparent in the first half of 2021.


Currency Market

If 2020 wasn’t difficult enough a year, potential turbulence over the next few months will mean the Christmas season will feel more like a pause than a break for currency markets. 

With a European winter setting in, new waves of COVID-19 are reinstating lockdowns and restrictions. In the US, the situation is going from bad to worse with record daily coronavirus cases and deaths. Recovery hopes hinge on how quickly vaccines are rolled out.

An American return to stable governance and re-engagement in multilateralism should give investors and currency market observers more certainty going into 2021, but there are plenty of moving pieces affecting where currencies will be in the new year.

  • USD - The USD experienced some bounces in November, but in early December is experiencing weakness. Optimism around a $908 billion stimulus package and positive vaccine headlines are boosting risk sentiment, prompting investment in equities and taking money away from the USD. The ongoing COVID-19 surge is also weakening consumer demand. Negotiations continue for a fiscal stimulus deal to support the US economy, but if negotiations fail before Biden’s inauguration, there could be a bounce. Likewise, should the incoming Biden administration make any announcements around corporate regulation, this could trigger a move away from equities and cause some appreciation of the USD in the short term. In the long term, economic fundamentals suggest weakness for the USD. The Federal Reserve promised to keep interest rates low until signs of inflation. In December we expect the USD to experience some volatility but should at least remain rangebound against euro, AUD, NZD, CAD and GBP.
  • AUD - After rate cuts in November, the RBA December announcement maintained the status quo and offered little insight into changes for 2021. November saw gains for the AUD off the back of positive sentiment which continues to drive direction in early December. The AUD recently broke resistance of 0.74 US cents. With positive sentiment expected to continue and long run US dollar weakness well entrenched, the AUD could make gains approaching 0.75 US cents. However, diplomatic tensions with China, Australia’s biggest trading partner, continue to deteriorate. With little hope of a near term resolution and China expected to push its trade agenda, this could present headwinds for further AUD upside. With the AUD continuing to enjoy higher highs and higher lows, our bias is for the AUD to enjoy further gains on the back of USD weakness.
  • GBP - The pound continues to show resilience despite challenging economic conditions, with direction being driven by Brexit and COVID-19 headlines. In early December, the news that the UK will be the first western country to approve a COVID-19 vaccine and optimism around a Brexit trade deal, saw GBP, also benefiting from USD weakness, break above the 1.35 handle against USD, hitting highs not seen since May 2018. Intense talks between UK and EU chief negotiators are still yet to yield even a partial trade agreement with the year-end deadline fast approaching, limiting the time needed for any deal to be ratified. The latest loose deadline to reach agreement is the EU summit on December 10-11th. There is overall optimism that an eleventh-hour compromise could be found, despite news from the talks indicating progress being mixed. Depending on Brexit outcomes, we could see GBP trading within the range of 1.30-1.36. of 1.30-1.36 in December. 

Finally, on behalf of the team at Atlas Wealth Management, we wish you and your family a wonderful festive season and look forward to seeing you for more dollars and dirhams in 2021. 

Brett Evans
Managing Director – EMEA 

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