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What is New

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Oliver's Insights - The 2019 Australian Federal election and investors

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

With the Australian Federal election now called for May 18, the attached note takes a look at the impact of Federal elections on investment markets and the critical policy differences this time around of relevance to investors. The key points are as follows:

 

  • Australian elections tend to result in a period of uncertainty which have seen weak gains on average for shares followed by a bounce once it's out of the way.
  • With Labor promising higher taxes, larger government and more intervention in the economy the May election presents a starker choice than has been the case since the 1970s & so suggests greater uncertainty for investors than usual.
  • Labor's higher tax and regulation agenda may be a negative for Australian assets, but this could be partly offset in the short term by more targeted fiscal stimulus.
  • To return to decent wage gains requires a productivity enhancing reform agenda and much lower unemployment. This election is unlikely to deliver much on the former.

 

Oliver's Insights - The 2019 Australian Federal election and investors Oliver's Insights - The 2019 Australian Federal election and investors (283 KB)

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Oliver's Insights - The 2019-20 Australian Budget – the long-awaited surplus and the promise of more tax cuts ahead of the election

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at the 2019-20 Australian Budget. The key points are as follows:

 

  • The 2019-20 Budget "delivers" the long-awaited surplus and increased fiscal stimulus mainly via tax cuts/offsets.
  • The main risk is that the revenue boost is not sustained & the budget continues to have relatively optimistic assumptions regarding wages growth.
  • The impact on the RBA and shares is likely minimal as the fiscal stimulus in the Budget is modest.

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Why growth in China is unlikely to slow too far and why it needs to save less and spend more

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note looks at the outlook for China. The key points are as follows:

  • China's economy is slowing but not collapsing as the services sector holds up. A further slowing is likely in the short term, but policy stimulus is likely to see growth improve in the second half, giving 2019 growth of 6.2%.
  • Concerns about China's rapid debt growth are overstated given it reflects high (not low) savings.
  • Chinese shares are cheap and attractive on a 12 month view, but expect short term volatility.
  • Reasonable Chinese growth is a positive for the Australian economy. The housing downturn will dominate though, pushing the RBA to cut rates and this will see the $A fall further into the $US0.60s.
 

 

 

 

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Oliver's Insights - Review of 2018, outlook for 2019 – another cycle extension

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note provides a review of 2018 and what it meant for investors and takes a look at the outlook for 2019. The key points are as follows:

  • 2018 saw reasonable global economic and profit growth and still low interest rates but it has been a rough year for investors with worries about the Fed, trade wars and global growth causing volatility and poor returns.
  • 2019 is unlikely to see the plunge into recession many fear with growth likely to stabilise supporting profit growth, the Fed is likely to undertake a pause in rate hikes and global monetary policy is likely to remain easy. The RBA is expected to cut interest rates.
  • Against this backdrop, share market volatility will likely remain high but markets should start to improve through the year.
  • The main things to keep an eye on are: the risks around the Fed, US/China tensions, global growth, Chinese growth and the property price downturn in Australia.

 

 

 

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Oliver's Insights - Rising US interest rates, trade wars, the US midterm election results, etc - should investors be worried?

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at share market valuations. The key points are as follows:

 

  • It's still too early to be sure that last month's pullback in shares is over but we remain of the view that it was not the start of a deep bear market and that the trend in shares remains up.
  • Worries around US interest rates, trade wars, European politics etc are unlikely to be terminal.
  • The US midterm election turned out pretty much as polls indicated. Since 1946 US shares have rallied in the 12 months after all midterm elections.

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The Australian housing market starting to cool (in parts)


Shane Oliver, Head of Investment Strategy and Chief Economist.

Key points are as follows:
 

Australian housing remains overvalued and this has gone hand in hand with 

high household debt. Against this, supply has been constrained and there has 
not been a deterioration in lending standards.

The hot Sydney and Melbourne property markets are showing signs of cooling
  as APRA measures bite. Expect price falls of around 5-10% around 2017.

Property investors need to be careful at this point in the property cycle as 
medium term returns are likely to be constrained.



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