The Australian economy is well placed to accelerate this year, albeit the rebound may not be as spectacular as in some of the deeply depressed economies overseas.

The rapid rise in long bond yields during 2021 has challenged the market narrative around the persistence of low interest rates. Australian 10-year bonds yields have moved up +100bps to 1.9%. This is a dramatic rise in such a short period relative to prior bond market sell-offs over the last 10 years.

A combination of vaccine roll-out, pent up consumer demand, fiscal stimulus and accommodative monetary policy set the stage for a sharp global economic recovery in 2021. Improved global growth will drive corporate earnings significantly higher, which should support equity markets.

Conviction Insights represents our highest conviction calls from across our coverage universe. Following an active month of investment rating changes across our coverage list, and taking stock of reporting season, we have made 2 changes to our Conviction Insights lineup:

Long-term interest rates have risen significantly in recent months. Equities have, for the most part, continued their impressive uptrend despite the rise in bond yields, but signs of strain in the relationship are starting to emerge.

Shaped by 3 major trends - earnings upgrades, higher dividends and strong cash generation - while earnings and dividends have been negatively impacted for the market as a whole, the February reporting season has been well-received relative to expectations.

Despite the lingering shadow of COVID-19 in much of the world, we believe prospects for risk assets remain constructive over the coming year.

As we approach the halfway point of the February reporting season, the clear trend is that corporate Australia has bounced back strongly over the second half of CY20, with the improving domestic economy translating into improved earnings and dividends.