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It has been an unusually disappointing year for the A2 Milk Company Ltd (ASX: A2M) share price.

After being up as much as 43% year to date at one stage, the a2 Milk share price is on course to record a 2020 decline of 18.5%.

Why has the a2 Milk share price bounced around in 2020?

Investors have been buying and then selling the company’s shares this year due to impacts from the COVID-19 pandemic.

At the height of the pandemic, a2 Milk was experiencing even more insatiable demand for its infant formula than normal due to panic buying and stockpiling.

This ultimately led to the company reporting a 32.8% increase in revenue to NZ$1,730 million and a 34.1% jump in net profit after tax to NZ$385.8 million in FY 2020.

Also coming in strongly was A2 Milk Company’s free cash flow. It generated operating cash flow of NZ$427.4 million, which led to it ending the period with a closing cash balance of NZ$854.2 million.

What went wrong?

However, since then, things haven’t gone quite to plan for the company and the tailwinds it was experiencing quickly became headwinds.

With many pantries stocked full of infant formula, demand for its key product softened. But the biggest impact was felt in the daigou channel because of the sudden closure of international borders, which meant no Chinese tourists hitting Australian shores and sending products back to the mainland.

The weakness in this particular channel was the reason for a2 Milk’s recent earnings guidance downgrade and means the former market darling is expecting to post a notable reduction in both sales and earnings in FY 2021.

Anything else?

Also weighing on investor sentiment this year was news that many of the company’s executives had sold a large number of shares.

For example, the company’s Chair and Non-Executive Director, David Hearn, offloaded 250,000 of the company’s shares through an on market trade on 24 August for an average of NZ$20.31 per share (~A$18.57). This represents a total consideration of NZ$5,077,500 or approximately A$4,642,500.

This compares to the a2 Milk 52-week high of NZ$21.74 and today’s share price of NZ$12.05.

It certainly was great timing on management’s part. Mr Hearn’s 250,000 shares would be worth a touch over NZ$3 million today, which is NZ$2 million less than the Chair received for them.

More reading

• What next for the a2 Milk (ASX:A2M) share price?
• 2 of the best ASX 50 shares to buy today
• Why a2 Milk, Adacel, Dusk, & Nuheara shares are charging higher
• Top brokers name 3 ASX shares to buy next week
• These were the best performers on the ASX 200 last week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the A2 Milk (ASX:A2M) share price is down 18.5% in 2020 appeared first on The Motley Fool Australia.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

On Wednesday morning, the U.K. authorized AstraZeneca‘s (NASDAQ: AZN) coronavirus vaccine candidate for emergency supply. The first doses of COVID-19 Vaccine AstraZeneca (formerly known as AZD1222) will be released today with the intention to begin vaccinations early in the new year.

The U.K.’s Medicines and Healthcare products Regulatory Agency (MHRA) recommends two full doses given four to 12 weeks apart. This is the dosing regimen that appeared 62% effective in clinical trials in the U.K. and Brazil.

You may remember an unintentionally administered half-dose/full-dose regimen that appeared more than 90% effective in a smaller group of patients. Unfortunately, data available to the MHRA wasn’t sufficient to persuade the agency to deviate from the two full doses received by the vast majority of clinical trial participants.

The European Medicines Agency (EMA) and the Food and Drug Administration aren’t on the same page as the MHRA. As a result, timelines for similar authorizations for AstraZeneca are still fuzzy. 

On Tuesday, EMA executive director Noel Wathion told reporters that AstraZeneca hasn’t even filed an application yet. While AstraZeneca has sent in some data, it hasn’t been enough to warrant a conditional marketing license.

In the U.S., COVID-19 Vaccine AstraZeneca’s path forward is going to be bumpy. The company’s CEO has hinted at more-compelling clinical trial data to come, but the results we’ve seen so far don’t meet the FDA’s pre-determined efficacy threshold. Plus, the FDA has clearly stated it’s unwilling to authorize a candidate without some pivotal data from a U.S. study. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Could AstraZeneca be a millionaire-maker stock?

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Wesfarmers Ltd (ASX: WES) share price has been a very positive performer in 2020 and has smashed the market.

The conglomerate’s shares have rallied an impressive 24% higher since the turn of the year.

This compares to a small decline by the S&P/ASX 200 Index (ASX: XJO).

Why is the Wesfarmers share price zooming higher in 2020?

Investors have been buying Wesfarmers’ shares this year after it delivered a strong result in FY 2020 and continued this positive form in the new financial year.

For the 12 months ended 30 June 2020, the company reported a 10.5% increase in revenue from continuing operations to $30,846 million.

The key driver of this growth was its key Bunnings business. It was the star of the show in FY 2020 and recorded a 13.9% increase in sales to $14,996 million. Management advised that this was driven by solid demand for products during the pandemic after customers spent more time doing projects at home.

This was supported by its Kmart, Officeworks, and Catch businesses. Kmart recorded a 5.4% lift in sales to $6,068 million, Officeworks delivered a 20.4% lift in sales to $2,775 million, and Catch reported a big jump in sales to ~$600 million.

What about FY 2021?

The current financial year looks set to be equally successful for Wesfarmers.

A trading update in November reveals that it achieved strong sales growth across the business during the first four months of FY 2021.

Once again, the star of the show was the Bunnings business. It reported a 25.2% jump in sales during the period. As with FY 2020, this was driven partly by customers spending more time undertaking projects around the home.

Can the Wesfarmers share price go higher?

Although the Wesfarmers share price has been on fire this year, one leading broker still thinks it can go higher from here.

A recent note out of Credit Suisse reveals that its analysts have an outperform rating and $55.83 price target on its shares.

The broker has been looking at the household goods sector and believes the market is underestimating the boost to spending in this area due to more working from home. This led to Credit Suisse lifting its sales forecasts for the Bunnings and Officeworks businesses.

More reading

• 3 ASX shares that were unlikely winners in 2020
• 2 quality ASX dividend shares to buy
• Leading fund manager names the ASX dividend shares to buy in 2021
• Forget savings accounts and look at these quality ASX dividend shares
• 3 top ASX retail shares for your 2021 portfolio

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The BHP Group Ltd (ASX: BHP) share price has been a positive performer in 2020.

Since the start of the year, the BHP share price has gained approximately 11%.

And if you add in the $1.75 per share dividends the company has paid during the 12 months, this gain stretches to over 15%.

This compares to a largely flat S&P/ASX 200 Index (ASX: XJO).

Why has the BHP share price outperformed in 2020?

The key driver of the company’s share price outperformance in 2020 has been a rise in the iron ore price. This has been driven by supply constraints in Brazil and robust demand in China as it spends big on infrastructure to reignite its economy.

Given the significant contribution that iron ore makes to its overall profits, a surging iron ore price is a huge positive for BHP.

At the time of writing, the spot iron ore price is fetching US$159.85 a tonne. While this has slipped from its recent highs, it is still around 70% higher than where it started the year.

It is also materially higher than what BHP pays to pull the steel making ingredient out of the ground.

The Big Australian has provided cost guidance of US$13 to US$14 a tonne for its iron ore operations in FY 2021. This means it will be generating high levels of free cash flow right now.

And given the strength of the company’s balance sheet, this is likely to lead to very generous dividend payments next year.

What else is support the BHP share price?

It isn’t just iron ore that is supporting the BHP share price.

Also rising this year was the copper price. The base metal is up strongly this year and has been trading at multi-year highs.

And while oil prices have been subdued, they are still trading at a level that make its petroleum business profitable.

Can its shares go higher?

One leading broker that believes there BHP share price can still go higher in 2021 is Ord Minnett.

Its analysts recently retained their buy rating and lifted the price target on its shares to $50.00.

The broker is also forecasting a fully franked ~$2.39 dividend in FY 2021. Based on the latest BHP share price of $43.14, this represents a 5.5% dividend yield.

More reading

• Will ASX iron ore shares continue running in 2021? 
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 up 0.65%: Big four banks rise, tech shares charge higher, Flight Centre jumps
• Leading fund manager names the ASX dividend shares to buy in 2021
• These ASX dividend shares could be top Christmas gifts for income investors

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Growing up on a farm taught me many things, not the least of which was to appreciate a good downpour. As quoted from Tom Barret “If the rain spoils our picnic, but saves a farmer’s crop, who are we to say it shouldn’t rain?”. Lo and behold, I find myself looking at the Bureau of Meteorology’s 2021 forecast, even though I have no lawn – just a habit, I guess.

Agriculturally geared ASX shares have been just as sporadic with their performance as the rainfall. Let’s take a look at how these ag shares fared the 2020 storms.

Elders Ltd (ASX: ELD)

Elders provides a wide array of foundational agricultural goods and services, including livestock and wool agency services; and financial services for primary producers. The Elders share price has increased 52.24% in the last year, while also paying a dividend yielding 2.22% based on today’s price.

The retail products area of the company benefitted from a strong winter crop season. Product margins were substantially improved also by the sale of whole products through the acquisition of AIRR.

Agency services (acting as a broker in agricultural goods), experienced uplift from the strong prices for cattle and sheep.

Elders’ FY21 market outlook forecasts production to grow, but the value to hold steady as the price will reduce as a result of increased supply. However, the ongoing trade tensions with China leaves a question mark over the head of performance for 2021

Citigroup has a “buy” rating on Elders with a price target of $13.

Select Harvests Limited (ASX: SHV)

Select Harvests on the other hand has had a rough year. The agribusiness grows almond orchards; and processes and distributes an assortment of edible nuts, dried fruits, natural health foods, etc. The company has seen its share price fall 37.5% in the last year, from $8.34 to $5.21 at the time of writing. Where did it all go wrong?

Apparently, conditions were near perfect in the United States, leading to an oversupply – putting downwards pressure on almond prices. In addition to this, the company experienced shipment delays and record or near-record high spot prices for water across its operations.

The culmination of challenges led to Select Harvests’ earnings per share falling more than 53% for FY20.

CEO Paul Thompson mentioned in the September results that the improved weather conditions coming into the new financial year had moved water prices back towards long-term averages. However, the CEO declined to give a forecast for the 2021 crop.

Select Harvests market capitalisation stands at $633.98 million.

Nufarm Ltd (ASX: NUF)

It’s been a trialing year for the Melbourne based agricultural chemical company. The share price started out the year at $6.13, since then it has been a case of taking the stairs up and the elevator down – only the stairs go up 1 floor, and the elevator goes down 2. Currently, the share price sits at $4.26, having fallen 30.5% since the start of the year.

The company struggled through the dry seasons across multiple geographies, with large issues stemming from Europe. Nufarm noted that the European market is complex, it has much more cautionary regulations and the devalued currencies in those areas impacted the business.

Supply chain disruptions by COVID-19 also impacted the company’s ability to meet demand when more favourable weather arrived.

However, Nufarm showed in its Annual General Meeting Presentation that with improved weather conditions returning, all regions have improved in terms of revenue compared to the same time last year. This resulted in second half revenue for 2020 growing to $2,847 million, compared to $2,674 the previous year.

The recent revenue growth also has Morgan Stanley retaining an “overweight” rating with a price target of $4.80 on Nufarm shares.  

Will it be flip flops or gummies?

Well, there is no certain correlation between weather and share performance, not that I have discovered as of yet anyway. But there can be implications from various weather events on how a company can carry out its business.

With that being said, if you were still interested, the Bureau of Meteorology is forecasting above-average rainfall for much of the country, better pack the brolly.

More reading

• Can the ugliest ASX 200 dogs of 2020 turnaround in the New Year?
• These ASX dividend shares offer investors attractive yields
• Leading brokers name 3 ASX shares to buy today
• 3 AGM highlights lifting the Nufarm (ASX:NUF) share price today
• Why Bapcor, Fortescue, Nufarm, & Saracen shares are pushing higher

Motley Fool contributor Mitchell Lawler owns shares of Elders Limited. The Motley Fool Australia has recommended Elders Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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With term deposits offering only paltry interest rates, income investors are turning to the share market for yield.

If you’re one of them, then you might want to take a closer look at the dividend shares listed below:

Accent Group Ltd (ASX: AX1)

The first dividend share to look at is Accent. It is the leading footwear retailer behind a number of popular store brands. These include HYPE DC, Platypus, The Athlete’s Foot, and Sneaker Lab. Accent has also recently launched two new store brands– Australian Stylerunner and Pivot.

Pleasingly, although a pandemic is not necessarily the best time to launch a new retail brand, this hasn’t stopped these new brands from thriving. Management revealed that these new stores have been materially outperforming expectations since opening. This bodes well for its bold expansion plans over the coming years.

According to a note out of Morgan Stanley, it expects the company to pay a fully franked dividend of 9.4 cents per share in FY 2021. Based on the latest Accent share price, this represents a 4% dividend yield.

Aventus Group (ASX: AVN)

Another dividend share to look at is Aventus. It is the owner and operator of 20 large format retail parks across Australia. It counts major retailers such as ALDI, Bunnings, Officeworks, and The Good Guys as tenants.

This is positive for two reasons. Not only has this supported high occupancy levels, these tenancies give the company’s centres a high weighting towards everyday needs. This has proven to be a real strength during the pandemic and allowed Aventus to collect the majority of its rent as normal in FY 2020.

Analysts at Macquarie are positive on the company and believe it will pay a 16.7 cents per share dividend in FY 2021. Based on the latest Aventus share price, this represents a forward 6% dividend yield.

More reading

• Why did the Accent (ASX:AX1) share price defy the odds in 2020?
• Why Afterpay (ASX:APT) and these ASX shares just hit 52-week highs or better
• These are the 7 best ASX retail shares in 2020
• Here’s what these popular ASX dividend shares plan to pay investors in 2021
• 2 ASX dividend shares with attractive yields

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group and AVENTUS RE UNIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Wednesday the S&P/ASX 200 Index (ASX: XJO) was out of form and dropped lower. The benchmark index fell 0.3% to 6,682.4 points.

Will the market be able to bounce back from this on Thursday? Here are five things to watch:

ASX 200 futures pointing higher.

The Australian share market looks set to bounce back on Thursday. According to the latest SPI futures, the ASX 200 is expected to open the day 6 points or 0.1% higher this morning. This follows a positive night on Wall Street which in late trade sees the Dow Jones up 0.3%, the S&P 500 up 0.2%, and the Nasdaq 0.3% higher.

Oil prices higher.

Energy producers such as Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) could be on the rise today after oil prices pushed higher. According to Bloomberg, the WTI crude oil price is up 0.7% to US$48.34 a barrel and the Brent crude oil price has risen 0.3% to US$51.23 a barrel. A decent U.S. inventory draw helped support prices.

UK approves AstraZeneca-Oxford University COVID vaccine.

The United Kingdom has become the first country to approve the COVID-19 vaccine developed by Oxford University and AstraZeneca for emergency use. Trials have shown that the vaccine is safe and about 70% effective against the virus, though AstraZeneca believes that its true efficacy is much stronger. This could be good news for the CSL Limited (ASX: CSL) share price. The biotech giant is already manufacturing millions of doses of this vaccine in Melbourne.

Gold price rises.

Gold miners such as Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could finish the shortened week strongly. According to CNBC, the spot gold price has risen 0.7% to US$1,896 an ounce. The gold price firmed up after the U.S. dollar sank to a multi-year low.

Early close.

The Australian share market will be closing early on Thursday ahead of the New Years break. According to the ASX, normal trading will cease at 14:10 Sydney time. After which, the market will be reopening as normal again on Monday of next week.

More reading

• ASX 200 drops lower
• Could inflation be coming in 2021?
• Can these 2 outperforming ASX gold miners shine on through 2021?
• Can the ugliest ASX 200 dogs of 2020 turnaround in the New Year?
• Is the surging Bitcoin an existential threat to ASX gold miners?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) fell by around 0.3% today to 6,682 points.

Here are some of the highlights from the ASX:

Integrated Research Limited (ASX: IRI)

The Integrated Research share price fell 13.25% today after giving investors an update.

The company reminded investors that it had made a continuous disclosure announcement on 18 December 2020 providing revenue and profit estimates for the half year ending 31 December 2020. At the time, Integrated Research said that the range of estimates for revenue and profit were wide because of the unpredictability of business closure in the remaining weeks of December.

The trading performance since that announcement has been below expectations with a continuation of customers deferring purchasing decisions. As a consequence, the company has revised its estimates downwards.

Integrated Research said that it’s anticipating revenue for the first half to be in the range of $34 million to $37 million, compared to $53.2 million for the prior corresponding period.

Profit for the first half is anticipated to be in the range of breakeven to $2 million, down from $11.8 million in the prior corresponding period.

Integrated Research anticipates making a further update on the unaudited results before mid-January with the half-year result expected to be announced on 18 February 2021.

Cooper Energy Ltd. (ASX: COE) and APA Energy (ASX: APA)

Cooper Energy confirmed today that the remaining Sole gas sales agreements (GSAs) will commence on 1 January 2021. Sole gas is processed at the Orbost Gas Processing Plant (OGPP) operated by APA Group.

The long-term GSAs with utility and industrial customers total 19.75 PJ (petajoules) annual contract quantity in 2021. The take-or-pay obligations are a minimum quantity of approximately 90% of the total annual contracted volume.

The commencement of these remaining GSAs means that most Sale gas will now be sold at agreed term contract prices. Prior to commencement of the GSAs, Sole gas was being sold at lower spot prices, less transportation costs, with revenue and costs shared between Cooper Energy and APA as per a previous agreement.

Cooper Energy managing director David Maxwell said: “The commencement of the Sole GSAs is a significant milestone which will deliver a material step-change in production, revenue, cash flow and earnings.

“We are pleased to be increasing gas supply to our utility and industrial customers and providing a competitive new source of gas to the domestic market. We are grateful for the strong support shown by our customers during what has been a longer than expected commissioning phase for the Orbost Gas Processing Plant.”

Other major movers

It was a quiet news day on the ASX 200 today.

The worst performers were: the Growthpoint Properties Australia Ltd (ASX: GOZ) share price which fell 4.3%, the Afterpay Ltd (ASX: APT) share price fell 3.6%, the Spark Infrastructure Group (ASX: SKI) share price dropped 3.2%, the APA Group share price dropped 2.9% and the Bravura Solutions Ltd (ASX: BVS) share price declined 2.7%.

At the top end of the ASX 200 performance table, the United Malt Group Ltd (ASX: UMG) share price rose 2.7%, the Sims Ltd (ASX: SGM) share price rose 2.5%, the Abacus Property Group (ASX: ABP) share price went up 2.4%, the Boral Limited (ASX: BLD) share price rose 2.3% and the Beach Energy Ltd (ASX: BPT) share price grew 2.2%.

More reading

• Could inflation be coming in 2021?
• If you thought 2020’s tech share rally was impressive, hold on for 2021!
• Here are 6 of the top performing ASX fintech shares of 2020
• Why Afterpay, DEXUS, Integrated Research, & Regis Healthcare are dropping lower
• Can the ugliest ASX 200 dogs of 2020 turnaround in the New Year?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Integrated Research Limited. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Talga Group Ltd (ASX: TLG) share price has surged by almost 250% this year, smashing through 10-year highs. Meanwhile, most investors have probably never heard about the company.

Talga is a lithium battery player, making battery anodes for lithium-ion batteries. Its business model is closely aligned with the expected boom in electric vehicles (EV).

Here’s the reasons why the Talga share price has risen so much in 2020.

An anode supply crunch

The company has said that despite a large number of graphite producers globally, there is a worldwide shortage of anode, and car and battery makers will struggle to source enough anode.

The company predicted that 3.5 million tonnes of graphite anode will be required by 2029, up from 600,000 tonnes today.

To anticipate this supply crunch, Talga has invested in the Vittangi mine in Sweden, which produces super high-grade deposits with graphite flakes already the perfect size for anode.

The company says that only a small fraction of global graphite resources can be converted into anode, which is nowhere near the levels where demand will be.

Recent progress

The company has also doubled down on its graphite investments, recently completing a scoping study on its graphite resources (the Niska project) in Northern Sweden. That study supported a 450% increase to its current European anode production plans.

In May this year, Talga inked a deal with giant European lithium-ion battery manufacturer Farasis Energy. Through the agreement, Talga will provide coated anode products, which Farasis will evaluate for its batteries and potential European development.

Bet on electric vehicles

The demand for lithium-ion batteries for use in electric vehicles is growing rapidly as the world transitions to more renewable energy sources.

Bloomberg’s annual Electric Vehicle Outlook forecast predicted that global demand for EV batteries will grow 14-fold by 2030.

Such a massive spike would require approximately 1.7 million tonnes of anode material every year, in order to sustain it.

How has the Talga share price performed in 2020

As mentioned, the Talga share price has risen by around 250% in 2020. 

At the time of writing, the Talga share price is trading at $1.64, down nearly 5% amid a broader fall in the ASX.

At the current share price, the company commands a market cap of $487 million.

More reading

• Why the Talga (ASX:TLG) share price surged by 5% today

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ah inflation… it’s not a ‘problem’ we hear too much about these days. Well, at least not in the way we used to. I’m just old enough to remember the Reserve Bank of Australia (RBA) raising interest rates ahead of the 2007 election over worries that inflation was running rampant. We haven’t heard any of those kinds of concerns in the 13 (soon to be 14) years since.

With the Australian (and global) economy still battling the recessionary effects of the coronavirus pandemic, inflation doesn’t look to be a problem any time soon either.

Traditional economics tells us that inflation is usually a product of an economy ‘growing too fast’, of tight supplies of production inputs such as oil, iron ore and labour resulting in rising prices across the board. That’s why interest rates used to be the first weapon of choice in fighting inflation.

If people have to spend more income servicing their mortgages and loans, they have less to spend in the economy. But interest rates have been at ‘historic lows’ for years now. And they got a whole lot more ‘historically low’ in 2020. The current cash rate stands at just 0.1%. That’s a long, long way from the 6.75% the RBA increased it to back in 2007.

The statistics back this monetary action up. Back in the quarter ending 30 June 2020, the Australian Bureau of Statistics recorded the biggest quarterly fall in inflation since it began recording inflation all the way back in 1948 with a running annual figure of -0.3%. But later data from the quarter ending 30 September pushed that figure up to 0.7%. Still, that number is not what constitutes ‘significant inflation’. That would be somewhere closer to 2–3%, which is the RBA’s ‘target band’.

Just when you thought inflation was gone for good…

But what if 2021 brings inflation back to the boiler? It’s not as far-fetched as you might imagine from looking at those statistics.

According to reporting in the Australian Financial Review (AFR) this week, the US Federal Reserve’s monetary policy actions this year (especially massive quantitative easing (QE) programs) have stoked significant fears of future inflation.

Why? Well, one statistic should shock you. The report tells us that “more than one in every five US dollars in existence was created in 2020 alone”. More than one in five just this year.

Here in Australia, we haven’t seen the same kind of monetary expansion. But the RBA has still cut rates to almost zero and launched its own program of quantitative easing. That’s never been done here before.

More money, more problems

Simple economics and the laws of supply and demand tell us that if you increase the supply of something, its value decreases. And a currency losing its value is effectively inflation by another name.

That’s why the report argues that it would be incredible to not see any adverse effects from this extraordinary monetary policy in the near future. You can’t expand a currency’s base by 20% without seeing some kind of ‘value impact’ — at least that’s what conventional thinking would dictate.

We have seen evidence of investors preparing for this scenario too. Why do you think the prices of assets like property and shares, and especially gold and bitcoin, have been on the rise so dramatically in 2020? One likely explanation is that investors are fearful of leaving wealth in cash, preferring to instead chase finite and ‘inflation-resistant’ assets such as precious metals and cryptocurrencies.

Unlike US dollars, no one can just ‘print more’ gold or bitcoin. This scarcity has value for many investors, especially so if those investors believe that the US dollar’s value is a melting ice cube. And with 20% more greenbacks in circulation today than this time last year, it’s not hard to see their point if you follow the money. Thus, it might be prudent to think about how your personal wealth and ASX share portfolio might fare if inflation does make its way back in 2021 or beyond.

More reading

• Can the ugliest ASX 200 dogs of 2020 turnaround in the New Year?
• Is the surging Bitcoin an existential threat to ASX gold miners?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 rises 0.5%
• Key risks and rewards for ASX share investors heading into 2021

Motley Fool contributor Sebastian Bowen owns bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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