Surprising industry trends leading Australia’s ‘extraordinary’ recovery

The big investment trends in the next 12 months

It’s been a rollercoaster 12 months on the stock market, but Australia is getting back to black territory - all thanks to our banks.

Speaking to Yahoo! Finance editor-in-chief Sarah O’Carroll at the Yahoo! Finance Live Summit, Bell Direct Senior Market Analyst Jessica Amir said the Aussie economy had beat growth expectations, after one of its toughest years yet in 2020.

“So many ASX listed companies are reporting strong rebounds in earnings, and we know earnings growth generally drives share price growth,” Amir said.

Key driver: Employment growth

“If you look at banks, which are collectively known as the Financial sector, they’re actually up the most this year - about 20%,” Amir said.

“And that puts banks on pace for the best gain year-to-date in a decade. It’s quite extraordinary.”

And the reason? “Mortgage applications are at an all-time-high, and building approvals are skyrocketing.”

As the labour market begins to make a comeback, Aussies with money to spend are looking to take advantage of record-low interest rates, which is putting more money into the banks’ pockets.

Key driver: Discretionary spending

Another key factor behind Australia’s economic recovery is changing consumer behaviours, Amir said.

“The consumer discretionary sector is the second-best performer on the ASX [Australian Securities Exchange] this year, and lockdown leisure stocks are really at the forefront of this,” she said.

Because we’re unable to leave the country, Aussies are heading on outback road trips with mates, or looking to entertain themselves online.

As a result, Amir said Aussie off-road vehicle company, ARB, was up 50% this year to be the best performer on the ASX in the consumer discretionary space, and shares in global online pokie company Aristocrat were also up 40% this year.

• Read more: Investment portfolio themes to consider

What risks should investors be wary of?

When it comes to investing, there are always risks you need to consider.

Right now, Amir said the biggest threats to the economy’s current bull market are: low interest rates and inflation.

“The risk is if interest rates rise sooner than we thought,” Amir said.

“We’re seeing inflation pick up...but the risk here is if prices rise more than is expected, then that could really take the top off some markets,” she said.

So where are the opportunities?

Anthony Doyle, Fidelity’s cross-asset investment specialist, who joined Amir at the Yahoo Finance Summit, told Yahoo Finance that he sees opportunities in emerging markets and Asia.

“The next 1 billion people to enter into the global middle class, 850 million will reside in Asia...That's really one place that we've been focusing our efforts on,” Doyle said.

And one way to do that is through exchange-traded funds - something Amir advocates for.

• Read more: What are ETFs - and why should you consider them?

“Arguably one of the most famous investors Peter Lynch said you can have one up on Wall Street if you become observational,” she said. “Just look at what's going on around you and then approach that thinking as you're investing.”

For example, right now there are more cars on roads, people in shops and queues in banks, Amir said, which plays into a major investment opportunity: oil.

“Last year, the effective oil price was below zero. This year the old price is in recovery mode, so it's up 60 per cent,” she said.”

An ETF to get you into oil is listed on the ASX as OOO, and it’s up 34 per cent this year, Amir said.

“Basically, it mimics what the oil price is doing, and it’s one of the best performing ETFs.”

The second thing to watch, Amir said, is electric cars and lithium.

“About 30 countries around the globe want to be emission free by 2050...What does that mean for us? It means we're going to see more electric cars on the roads in the next 10, 20, 30 years.”

If you want to get into electric cars or lithium, a popular ETF that investors are buying has the ticker code ACDC.

“That had a really cracking year last year, and this year it’s up 14 per cent.”

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