Markets, News, Views, Commentaries….. (April 2017)

Markets, News, Views, Commentaries….. 

The “Trump trade,” which saw equities rise strongly, bonds sell off, and the U.S. dollar strengthen, has weakened as investors have reassessed the Trump administration’s ability to implement its economic agenda.   Bond yields have dropped back, and both bonds and bond proxies like property and infrastructure have benefited, while equities have temporarily stalled.

More positively, recent data suggest that the world economy is strengthening, which is supportive of growth assets (shares, property), although on current expensive valuations there is little room for corporate performance to fail to deliver. Valuations also appear to be paying too little heed to potential economic or geopolitical shocks. At home, the latest data suggest, tentatively, that the economy may be picking up out of its post-mining-boom slowdown, which would be helpful for growth asset performance, although there are the same issues in Australia as there are overseas around generally expensive share prices.

Last Thursday night, ComSec’s Savanth Sebastian shared with us his insights into the economic state of play in Australia and overseas in his presentation entitled “Living in the Trump Era”.  It was fascinating stuff and provides us with a great running commentary as follows:

  • The world’s economies have cleared a number of hurdles in recent times but there are still plenty ahead including a number of European elections that will continue to gauge social unrest and test the strength of the Eurozone, and ongoing geopolitical tensions in numerous hotspots around the globe.
  • World economic growth is currently slightly below the 40 year average however is forecast to continue to grow each year now. This is shown in the grass below as is an interesting breakdown of the various contribution of major economies to the overall rate of growth. You can see that China (1.02%) contributes about a third of the current world growth of 3.1%, while United States and India are the other major contributors.  Between them they contribute almost 60% of total world economic growth

  • This shows the importance of the Chinese economy to the rest of us, and while the mining boom has ended, Savanth pointed to what is now known as the “Dining Boom” where the ever-growing Chinese middle-class/consumer-class has become Australia’s next great customer via not only food exports (left side below) but also through tourism (right side).  Savanth told us that while the average tourist from the USA spends around $3,500-$4,000 during their Australian visit, the average Chinese tourist spends $8,500-$9,000.

  • Australia to is in good shape in the opinion of ComSec, with their data pointing to record car sales, dwelling starts, tourist arrivals, and increased consumer and business confidence.
  • For a range of reasons including commodity prices, a firmer Australian economy, and a number of Trump related factors that should see the strengthening of the US dollar, they expect to see the Australian dollar down in the range of $.70 and lower in the not too distant future.  (Note that this should make our export industries which include tourism and education in the form of overseas students coming to study far more attractive and therefore able to pick up more of this lack left by the post-mining boom).

And to conclude, Savanth shared with us their key predictions below:

Sources:  Morningstar research; CBA Research; RBA, Savanth Sebastian (ComSec)