Pandemic year 2: IT goes from best to worst performer in climbing market but communications services is best

ASX shares overall rose about 13 per cent in 2021, the pandemic’s second year, but some sectors went their own ways.

A Telstra technician works on installing 5G. Communications services was the best-performing sector of 2021, mainly due to a 43 per cent rise in sector heavyweight, Telstra, but also there were some other standouts.

A more consistently positive performance from shares emerged in 2021 as investors grew more confident that the world will finally start to move past the Covid-19 pandemic.

After the wild ride that followed both the shock of unprecedented shutdowns and the euphoria caused by unprecedented monetary and fiscal stimulus in the first half of 2020 and the vaccine developments in the second half of that year, it was onward and upwards in 2021.

Whereas in 2020, Australia’s benchmark S&P/ASX 200 share index lost ground even after rebounding 52 per cent from its low, it saw more of a steady improvement in 2021.

Nine of the past 12 months were positive and the index rose 13 per cent for the year.

And unlike 2020 when there was a big divide in the performance of the 11 main sectors of the sharemarket, 2021 was also much more consistent in terms of sectoral performance.

All sectors except information technology and energy were able to rise in 2021.

Interestingly, tech went from being the best-performing sector in 2020 to the worst in 2021.

That was partly because the sector’s biggest stock, Afterpay, effectively became linked to the falling share price of its US acquirer, Block Inc. (formerly Square Inc.) after its scrip-based takeover bid.

It was also due to higher bond yields amid higher inflation and less asset buying from central banks.

The US 10-year Treasury bond yield rose from 90 basis points to 1.50 basis points, hitting the discounted cash flow valuations of so-called “long duration” stocks like Afterpay and Xero.

The US 10-year bond yield is expected to rise to just over 2 per cent by the end of 2022 before continuing up to 2.4 per cent by the end of 2024, according to Bloomberg’s economic survey.

But that didn’t cause a broadbased retreat in “Covid winners” and high valuation stocks.

Domino’s Pizza, for example, jumped 36 per cent after surging 70 per cent in 2020.

Domino’s was a Covid winner for the second year. Picture: NCA NewsWire / Brenton Edwards

The past year saw some support for “Covid losers” and value stocks that were left behind in the stages of the pandemic. But gains in the travel sector for example were generally muted by jitters over the impact of successive waves of Covid variants. Qantas barely managed to rise for the year.

Real estate and industrials sectors went from being some of the worst to among the best performing sectors in the past year. But real estate was boosted by a surge in sector heavyweight, Goodman Group, which has been something of a “Covid winner”. Shopping-centre owners like Unibail-Rodamco-Westfield, Stockland and Vicinity Centres still underperformed.

There were also stellar gains in value plays like Reliance Worldwide and Sydney Airport, the latter benefiting from the frenzy of takeovers which swept the sharemarket globally amid ultra-low funding costs and a sense that the world will eventually “learn to live” with Covid.

Financials also went from being one of the worst to one of the best-performing sectors.

‘Sold’ at Balmoral on Sydney’s Middle Harbour. North Shore. There was a 20 per cent rise in the banks index as the residential property market surged amid low interest rates and a vastly improved capital position for the banks. Picture: NCA NewsWire / Gaye Gerard

Much of that was due to a 20 per cent rise in the banks index as the residential property market surged amid low interest rates and a vastly improved capital position for the banks to restart dividends and share buybacks, although the sector has gone sideways since June.

Communications services was the best-performing sector of 2021, mainly due to a 43 per cent rise in sector heavyweight, Telstra, but also there were some other standouts in the sector, with a 160 per cent rise in Uniti Group making it the sixth-best-performing stock in the market.

Elsewhere, the materials sector went from being the second-best to the fourth-weakest-performing sector, mainly due to the iron ore price slump from around $US233 to $U120 a tonne.

Fortescue for example dived 18 per cent after surging 125 per cent in 2020 as iron ore boomed.

The energy sector disappointed again, mainly because of the underperformance of Woodside and Santos.

Bags of lithium concentrate sit ready for transportation at a mine in Western Australia. Picture: Bloomberg

But six of the top 10 performing stocks for the year were either in the materials and energy sectors.

Three of the top 10 – Liontown Resources, Pilbara Minerals and Allkem – are lithium plays.

Battery materials supplier Novonix topped the list with a 660 per cent rise for the year.