What to expect from ASX 200 shares in FY2021

With FY21 starting tomorrow, I look at 2 things that might move the ASX 200 and ASX shares in the new financial year and beyond!

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We are just about to round out another financial year (FY20) on the S&P/ASX 200 Index (ASX: XJO). Unlike most other advanced economies, Australia’s financial year divides June and July – which is nice considering we don’t have to do our tax returns just after Christmas.

But with FY2021 now staring us in the face, I’m thinking about the year ahead and what it might bring for the ASX 200 and Aussie shares in general. So, here are the two main factors I think will be shaping the markets in coming financial year.

The coronavirus pandemic

This is an obvious one. But in reality, the coronavirus pandemic, and its associated economic restrictions, are likely to still be a major force (if not the force) driving the movements of ASX 200 and the broader share market over the next financial year. Back in March, the ASX 200 nosedived more than 35% when it became clear just how much havoc the virus was set to wreak on the economy.

Since then, the ASX 200 has recovered considerably, but I still think things could go either way from here. We still don’t know the full extent of the damage done to our economy by the first wave of lockdowns. If it turns out to be worse than investors are expecting today, or if there is a second wave of infections and more lockdowns, this could drag ASX shares back down to the levels we saw in March and April. Fingers crossed this doesn’t happen, but as they say, ‘hope isn’t a strategy’.

The US election

It might be far from front and centre for us Aussies right now, but the United States is building up to what could be an extremely contentious and divisive set of elections in November of this year. Not only is President Donald Trump up for re-election against former Vice President Joe Biden, but a third of the US Senate and the entire House of Representatives is also facing the voters. We could see big swings going either way on 3 November.

President Trump has a reputation as being more ‘business-friendly’ than Joe Biden on policy areas like taxation and healthcare. So, if Mr Biden wins the election, I’m expecting some big swings in the US markets which will likely reverberate onto the ASX. No matter what happens, I think the elections will be one of the biggest share market events of the new financial year.

Foolish takeaway

Much like the second half of FY20, I’m expecting gyrations, volatility and unpredictability for ASX 200 shares throughout FY21. I might be wrong, but I always think it’s a good idea to hope for the best and prepare for the worst. Afterall, no one really knows what will happen on the share market until it does. So here’s to FY21 and may it bring us all success on the markets!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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