Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 382

Four themes to set your portfolio for economic recovery

We are only months into the start of a new economic cycle, and this is a perfect opportunity for investors to get positioned for years of economic growth ahead. The cycle is already off to an unusual start, kicking off with a pandemic and unprecedented government and central bank stimulus.

Not surprisingly, there is good and bad news for investors looking to reposition their portfolio. The good news is that there are clear thematics that long-term investors can take advantage of over the next decade.

The investment themes guiding the next cycle

Some of these thematics have been driven by health risks stemming from COVID-19, including those that resulted from a shift in consumer spending and businesses re-orientating operations.

Niche technology groupings like eCommerce, digital payments and collaboration/productivity tech are expected to benefit from the post-COVID-19 behavioural shift. But let’s also not forget the value end of the market that is set to benefit from the growth recovery and especially from a vaccine. We’re keeping an open mind for COVID-19 therapies and vaccines that are plausible, plentiful and potent that would see a normalisation of consumer services and underpin cyclical sectors.

The not-so-good news is volatility is not going to vanish in the short term, and there is still a lot of stimulus and accommodative monetary settings required to recover from COVID-19. Policy co-ordination will be paramount to ensure sustainable economic gains do not vanish once temporary programmes and initiatives fade.

The Reserve Bank announcements this week have taken measures even further, including reducing the cash rate to 0.1%, setting the 3-year government bond target to 0.1% and expanding asset purchases (quantitative easing) to $100 billion of Commonwealth and State bonds. 

Looking forward, investors can consider the following thematics as crucial to their portfolio construction.

1. Borrowers cash in on debt

Governments will take advantage of a low yield environment to finance long term infrastructure spending, which is expected to be a large driver of growth and a primary tool for reducing elevated unemployment rates due to the pandemic.

Businesses will also be opportunistic to borrow at 'rock bottom' yields to fortify their balance sheets and it is expected that balance sheet management will be a key part of strategy as the economy re-energises, and as we’ve seen the correlation between balance sheet weakness versus balance sheet strength is a key measure between performance and underperformance.

For investors, fixed income opportunities will arise in both the primary and secondary 'over-the-counter' bond markets as new issuances are created to finance corporate and government objectives. 

2. Identifying sectors with long-term growth potential

The vaccine is key to long-term stability as economic recovery kicks in. This means that investors will be more guarded and cautious, particularly until the vaccine becomes a reality.

Given we already have high valuations in some sectors, like tech, we have a mid-2021 ASX200 target of 6200, and it will not just be an upward trajectory. We expect sector rotation from COVID-19 beneficiaries such as the tech sector/health sector to the cyclical sectors that includes resources and industrials especially if there is firmer footing in a broad economic recovery.

But we can also see an expectation that government, central banks and regulators will maintain discipline in nudging the recovery forward.

3. Consider elevated risk the new normal

Volatility is here to stay, and investors should prepare their portfolios accordingly. Risk remains at elevated levels, with some of the key risk-factors including:

  • The US presidential election fallout and post-election destabilisation
  • Racial inequality unrest
  • Global trade restrictions, particularly as a result of any escalation of US-China tensions
  • Second waves of COVID-19 across continents or key countries as the northern winter settles in
  • Any failure or significant setback of promising vaccines.

Our recommendation through this period of heightened volatility is not to play the short game and avoid trying to time the market.

Investors can consider structured investments, which can be tailored to produce income in flat, falling or rising markets. We anticipate a flat equity market, with crowded investment positions shifting away from out-of-favour sectors, such as industrials, materials and financials, until growth becomes sustainable and delivers heightened production and economic activity and rising yields.

4. Seek balance and remain allocated through the investment cycle

Citi prefers a balanced portfolio that allows diversification to play its role as a modifier of risk, and includes income assets, like corporate and selective high yield bonds, that provide cash-flow stability. This is especially true with rates and yields sitting at the bottom of the curve, and we expect it to remain this way for several years.

Equities remain an important part of asset allocation and will form an increasing percentage of a portfolio as the recovery gains traction. However, it’s likely many investors are sitting on equity portfolios built up in the previous economic cycle, and require adjustment to suit the next set of anticipated thematic trends.

In the current market we remind investors to remain open-minded to adding cyclical and value-driven stocks to their portfolio, particularly if they are under-allocated to equities after selling down their portfolios in response to the chaos caused by the virus.

We reiterate our long-maintained stance to remain allocated through the investment cycle, as sitting on the sidelines means you miss out on the best days in the market, which may mean forgoing initial recovery periods that can often include healthy indices increases.

 

Simson Sanaphay is Chief Investment Strategist for Citi Australia, a sponsor of Firstlinks. This article is general information and does not consider the circumstances of any investor.

For more Citi articles and papers, please click here.

 

  •   4 November 2020
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Five factors driving the great Australian recovery

What we don't know: five strategies for uncertainty

The diversification illusion: why 'balanced' portfolios may be exposed

banner

Most viewed in recent weeks

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Do super funds need a massive wake up call?

UK retirement expert, Guy Opperman, believes super funds are failing at supporting members in deaccumulation. Here is what Australia should do about it. 

Latest Updates

Retirement

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

Investment strategies

Three strategies for investing amid AI whiplash

AI fears have shifted from bubble talk to disruption anxiety, driving investors toward asset-heavy, 'AI-resistant' businesses while punishing many software and service firms. This environment may be ripe for stock pickers.

Investment strategies

Are private market assets the answer in an unstable world?

Private markets can offer diversification and return potential, but their opacity, scale and wide dispersion of outcomes make manager selection and due diligence critical for non‑institutional investors.

Property

Mispriced in plain sight: The case for Global REITs

Global REITs have fallen out of favour, trading at deep discounts after years of underperformance, despite resilient earnings and improving fundamentals.

Investment strategies

Survival is the only success

True financial success isn’t about how much you make, but whether you can sustain it — survival is the only win that matters.

Investment strategies

$42 billion too late

Why Australia's biggest energy bet may already be redundant while a less celebrated government program is exceeding expectations. 

Investment strategies

Do investors accept lower returns from assets that make them feel good?

Assets that deliver emotional satisfaction tend to offer lower financial returns, as investors accept an “emotional yield” in place of performance which shapes how investors approach ESG and unpopular assets.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.