Make no mistake.
Without the concerted stimulus efforts of governments and central banks across the developed world, the late March share market miracle rallies would not have occurred.
In the United States, the Nasdaq Composite (NASDAQ: .IXIC) would never have soared 82% from its 23 March low to its closing level yesterday.
In Europe, Germany's DAX PERFORMANCE-INDEX (DB: DAX) would never have leapt 57%.
In Asia, Japan's Nikkei 225 (NIKKEI: NI225) would not have rocketed 59%.
And here in Oz, the S&P/ASX 200 Index (ASX: XJO) would not have gained 47%.
Not without central banks slashing interest rates to effectively zero and pumping trillions into their quantitative easing (QE) programs. And not without governments abandoning their balanced budget goals to release trillions more dollars in stimulus spending.
We're not out of the pandemic woods yet
Despite their herculean efforts, and the imminent rollout of numerous COVID-19 vaccines, we're not out of the woods yet.
Australia looks to have the virus largely contained (knock on wood!). But it's running rampant across most of Europe, the Americas, and much of Asia. That means much of the world can expect to remain in various stages of lockdown well into 2021.
That's bad news for economies and share markets. And that means more stimulus is underway.
Indeed, in the US, politicians are moving closer to a new US$908 billion (AU$1.2 trillion) package, which President Donald Trump has indicated he's likely to sign.
According to Bryce Doty, portfolio manager at Sit Fixed Income Advisors, that next round of stimulus is already widely priced into the markets (quoted by Bloomberg): "The market is basically assuming that it gets done. Now any setback makes the market vulnerable, because it's built in that they will pass it."
But this US stimulus package is almost certainly not the last. President-elect Joe Biden has already signalled Americans can expect more to come in 2021.
Meanwhile the Japanese economy and share market are set for their own Suga hit (sorry, couldn't resist!).
Japan's Prime Minister, Yoshihide Suga, is expected to unveil a new stimulus package in excess of 70 trillion yen (AU$900 billion) later today. In potentially good news for tech shares, Suga intends to spend big on improving Japan's digital infrastructure.
We're also expecting new stimulus announcements from European Central Bank (ECB) president Christine Lagarde this week.
The details of that package have not been revealed. But Bloomberg reports that, following this week's expected stimulus announcement, the ECB's total measures to date "will exceed 1.8 trillion euros [AU$3 trillion] after the newest salvo this week – along with huge provisions of cheap loans for banks".
Here in Australia, the RBA remains open to extending its new $100 billion QE program if needed.
Growth shares, value shares, or run for the hills in 2021?
2020's share market rally was a boon for many sectors. But growth shares, particularly in the tech and medical sectors, largely stole the show.
This has seen buy now, pay later (BNPL) darling Afterpay Ltd (ASX: APT) top the ASX 200 list with the biggest share price gains in 2020 (so far). If you'd bought shares in Afterpay at the market close last year, you'd be sitting on a gain of 230% today.
Mesoblast Limited (ASX: MSB) takes the second spot on the ASX 200 top share price gainers for 2020. Shares in the regenerative medicine company are up 116%.
Those kinds of price gains, according to Vocus founder James Spenceley, spell bubble trouble. Though not necessarily right away. Speaking at the Australian Financial Review Innovation Summit, Spenceley said:
Everything is overvalued, there's absolutely no question, we're into bubble territory. I think the important differentiator is bubbles can keep going for a very long while.
Frank Panayotou, managing director, UBS Private Wealth Management, offers a more upbeat view in a written note, while stressing the need to keep the right balance in your portfolio (quoted by the AFR):
The pace of gains in big cap technology stocks will inevitably cool as participation broadens to include more cyclical names as markets anticipate progress toward a more normalised post-COVID economic environment.
We remain mindful of not allowing our portfolio strategy to become intoxicated with what's worked this year at the risk of missing out on the next great thematic opportunity.
Going forward, we don't believe that growth stocks need to roll over for value stocks to do well, so we have been steadfast in rebalancing client portfolios to ensure they are appropriately style balanced heading into 2021.
So, according to Panayotou, don't expect share markets to behave next year as they did this year. And keep an eye on your bubble indicators.
But with trillions of dollars in new global stimulus set to be unleashed, it seems there will be plenty of opportunities to make money from the best ASX shares in 2021.
