Victoria’s tightening lockdown could knock at least $12bn off the Victorian and national economy and delay the return to positive Australian GDP growth to the December quarter. The further hit to the economy and likely additional upwards pressure on unemployment is increasing pressure for more policy stimulus.
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The price of gold has now broken out to a record high and the Australian dollar has risen 30% from its coronavirus panic low in March and broken above $US0.70. What’s driving this and what does it mean for investors? This note looks at the main issues.
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The budget and associated debt blowout is unlikely to cause a major problem as public debt is relatively low, borrowing costs are very low, the Government is borrowing in $A’s & it’s not dependent on foreign capital. Letting the deficit rise is the right thing to do writes Dr. Shane Oliver.
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Shane Oliver looks at the key issues around fiscal support and the budget in Australia ahead of the Treasurer’s Economic Statement which is expected to provide new economic forecasts, an estimate of the budget cost of support measures so far and outline plans for future support measures.
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The past financial year was poor for investors as coronavirus knocked economies into what is likely to be their biggest hit since the 1930s. Shares were hit hard, but the blow was softened by a strong rebound in the June quarter. Shane Oliver reviews the last financial year and takes a look at the outlook.
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The run up to the US election on 3rd November has the potential to see increased share market volatility if it looks increasingly likely Biden will win and if Trump ramps up tensions with China (and maybe Europe) in response. However, this is likely to be short lived as there is no reason to expect a weaker economy and hence share market under a Biden presidency.
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A serious second wave of coronavirus cases in major developed countries is the biggest risk facing equity markets, and one investors will need to watch closely.
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Shares are vulnerable to a short-term consolidation or pullback. But if we are right, and April was the low in economic conditions, then shares are likely to be higher on a 6 to 12-month horizon.
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Shane Oliver takes a look at the medium to longer-term implications from the coronavirus shock of relevance to investors. Some of these will constrain economic growth but the faster embrace of technology is positive for growth.
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This note looks at our own projections for the budget deficit, the impact on Australia’s net public debt and whether it’s affordable.
Read MoreThree things suggest Australia looks likely to come through this period of global misery relatively well compared to many other countries.
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As we’ve seen recently growth assets like shares have periods of bad short-term performance versus bonds & cash. But they provide superior long-term returns which is essential to grow retirement savings. It makes sense for superannuation to have a high exposure to them.
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The blanket coverage of coronavirus and its impact on the economy can lead to a lot of confusion right now. Some reports are hopeful of anti-viral drugs, others say a vaccine is at least a year away. There is talk of curve flattening but still rising cases and deaths. There is news of an easing in lockdowns but also worries about “second waves”. All this against a backdrop of collapsing economic data and surging unemployment.
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This note looks at what QE is and how it entails printing money, why it’s being used and what the risks are.
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Shane Oliver provides some insight as to what investors should look for in terms of when we can expect a bottom or be at least somewhat confident that the bottom has been reached.
Read MoreAlong with the horrible human consequences, the coronavirus pandemic is having a huge impact on the way we live and as a result investment markets. Shane Oliver provides a simple Q&A for most of the main issues from an economic & investment perspective. To the extent simple answers are possible in this environment!
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The bottom line is that while we may see the biggest hit to global and Australian GDP since the 1930s thanks to the shutdowns, there are big differences compared to the Depression suggesting that a long drawn out global downturn is not inevitable.
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The coronavirus pandemic & associated shutdowns to economic activity now poses a significant threat to the outlook for property prices. The question is how big the threat is?
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While we haven’t seen a pandemic driven bear market before the basic principles of investing have not changed. Shane Oliver revisits five charts particularly useful in times of stress.
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Given the extreme uncertainty in all of this Shane Oliver looks at various scenarios in relation to global and Australian economic growth and what signposts to look at in relation to how it may unfold.
Read MoreSharp market falls with headlines screaming that billions of dollars have been wiped off the share market are stressful for investors. The current situation is doubly stressful because of fears for our own and others’ health – particularly for the elderly. However, several things are worth bearing in mind.
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The hit to economic activity is deepening & the risks around Covid-19 becoming a pandemic have risen leaving shares vulnerable to more near term falls. The key for most investors though is to recognise that periodic share market falls are inevitable & hard to time & so it’s best to take a long-term approach to investing.
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With inflation low, and as long as recession is not imminent, it makes sense that traditional valuations like PEs are higher than their long-term average. Similarly, it makes sense that property yields are lower than normal, but the fall in Australian housing yields has been extreme relative to commercial property & shares.
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Our natural inclination to zoom in on negative news combined with a massive ramp-up in the availability of information is arguably making us worse investors: more fearful, more jittery, more short-term.
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The China coronavirus outbreak has led to concerns of a global pandemic triggering an economic downturn. Our base case is that the outbreak will be contained allowing share markets and bond yields to rebound.
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Our high-level investment view for this year is that a combination of improving global growth-boosting profits and still easy monetary conditions will help drive reasonable investment returns, albeit more modest than the very strong gains of 2019. This note revisits five charts we see as critical to the outlook.
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Despite ongoing bouts of volatility, 2020 is likely to provide solid returns, albeit slower than seen in 2019. Watch US trade wars, the US election, the US/Iran conflict, global business conditions indicators, and monetary versus fiscal stimulus in Australia.
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The bushfires are expected to result in around a 0.4% hit to GDP mainly in the March quarter followed by a rebuilding boost. The drag on economic activity has increased the pressure for more monetary and fiscal stimulus.
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2020 is likely to see global growth pick up with monetary policy remaining easy. Expect the RBA to cut the cash rate to 0.25% and to undertake quantitative easing.
Read MoreThere is good reason to believe we may be close to the low in the $A (or have already seen it): it has already had a large fall; it is just below fair value; the global economic cycle is likely to turn up next year; sentiment towards the $A is very negative; and the current account is in surplus.
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While growth assets like shares go through bouts of short-term underperformance versus bonds & cash, they provide superior long-term returns. It makes sense that superannuation has a high exposure to them.
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There is no denying concerns about global debt, seemingly never-ending QE, more debt trading on negative interest rates, inequality & geopolitical threats. However, some of these concerns are exaggerated and there are five reasons why I am not so fussed about the global outlook.
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The world of investing can be confusing and scary at times. But fortunately, the basics of investing are timeless and some investors (often the best) have a knack of encapsulating these in a sentence or two that is insightful and easy to understand. In recent years I’ve written several insights highlighting investment quotes I find particularly useful. Here are some more.
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These five great charts help illuminate key aspects of investing for income (or cash flow): there are alternatives to bank deposits for income; the gap between yields on different assets provides a guide to relative value; shares can provide stronger growth in income with less volatility than bank deposits; a high and sustainable income yield from an investment provides security; and yield is a guide to future returns.
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A per capita recession on its own is not the same as a real recession, and the three seen over the last 28 years do not compare to the recessions of the early 1980s and early 1990s in terms of their impact on jobs, economic welfare and confidence.
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The ongoing slide in investment yields across major asset classes points to a more constrained medium-term return outlook. For a diversified mix of assets, this has now fallen to around 5.6% pa on our projections.
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The choke point for global growth from higher oil prices is normally a doubling in prices. We are a long way from that but key to watch will be how long the supply disruption lasts and whether there are more attacks from Saudi Arabia or the US.
Read MoreThe combination of rate cuts, the election and a modest regulatory relaxation have helped turn property prices back up, but the upswing is likely to be constrained.
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However, while the risks have gone up, recession remains unlikely: tax cuts should help growth in the current half year; the threat from falling property prices has receded; infrastructure spending is booming; the low $A is helping growth; the drag from falling mining investment is over; the current account is in surplus; there is scope for extra fiscal stimulus; population growth remains strong; and cyclical spending is low.
Read MoreUnconventional monetary policy measures could help the economy, but negative interest rates are unlikely and quantitative easing would be most effective and fairest if combined with fiscal stimulus.
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