Expect Australia to outperform the US this year

Australian shares could outperform the US this year as the country recovers from the pandemic despite not having such a strong economic rebound.

The S&P 500 returned 7.8% in 2020, helped by the success of technology stocks which dominate the index and had outperformed in the pandemic, while the ASX 200 returned 1.4%.

Performance of S&P 500 versus ASX 200 during 2020

In an AMP webinar, senior economist Diana Mousina, said: “The US will do well this year, it could see growth in the ballpark of 7%-8% but the global economy is rebounding. Non-US markets underperformed last year but now global growth is improving, they have the opportunity to outperform this year given they didn’t have a such a strong rebound”.

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While she said Australian shares would likely manage to outperform the US this year, the travel restrictions would continue to have an economic impact due to Australia’s heavy reliance on tourism as well as international students.

“Australian GDP [gross domestic product] is pretty solid but the problem will be that Australia relies on migration to drive GDP. It lost a big chunk of demand from COVID so there will be this big chunk of the economy that you can’t get back again until you see the population rebound.

“GDP is unlikely to reach pre-COVID levels until then.”

Unemployment, she said, was likely to be 6% by the end of the year, only a slight increase from the 5% it was expected to have been pre-pandemic, and 90% of jobs had already been regained.

Meanwhile, while the US was expected to see growth of 7% to 8% supported by stimulus packages and vaccine deployment, the undivided Congress and White House, which were now both Democratic, was unlikely to be positive for the stockmarket.