The return on the ASX 200 so far in 2021 has been driven by the key cyclical stocks and sectors of the market, particularly financials and resources. From an individual stock perspective, the four major banks have all been in the top five for contribution to the overall market’s return, while Macquarie Group is ranked 7th. Among resources companies, BHP and Rio Tinto have also lifted the overall market, supported by elevated commodity prices, particularly iron ore.
Chart 4: ASX 200: Contribution to return in 2021
A sharp rise in bond yields in the second half of February triggered a sell-off in growth-sectors of the Australian market, including health care and IT. However, with the bond market stabilising over the last five weeks, these sectors have also rebounded strongly in this time and have now returned to similar trading levels to the start of February.
Chart 5: Growth sectors bounce back from sell off
Underpinned by a low interest rate environment, the forward PE ratio of the Australian equity market remains at elevated levels, although it is down slightly from late 2020. Gains in the equity market have hence been driven by a cyclical recovery in earnings, particularly in the last six month period.
Chart 6: ASX 200 Forward PE Ratio remains elevated