From bushfires to Coronavirus - five ways to turn down the noise around investing

Shane Oliver, Head of Investment Strategy and Chief Economist

The attached note takes a look at the worry list for investors, which is currently focussed on coronavirus, and how to turn down the noise around investing. The key points are as follows:

• The coronavirus outbreak, while horrible from a human perspective, is just another of a long list of worries for investors.

• 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.

Five ways to help manage the noise and turn down the worry list are: put the latest worry in context; recognise that shares return more than cash in the long-term because they can lose money in the short-term; find a process to help filter noise; make a conscious effort not to check your investments so much; look for opportunities that investor worries throw up.

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Five charts to watch regarding the global economy and markets this year

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at five charts worth keeping an eye on regarding the global investment outlook. The key points are as follows:

• Shares are at risk of a short-term correction or consolidation after a strong run over the last year and with sentiment now very bullish. However, this year should still see good returns for investors as global growth edges up and interest rates remain low.

• Five key global charts to watch are: global business conditions PMIs; global inflation; the US yield curve; the US dollar; and global trade growth.

• So far so good, with PMIs improving a bit, inflation remaining low, the yield curve steepening, the $US showing signs of topping and the US/China trade truce auguring well for some pick up in world trade growth.

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Review of 2019, outlook for 2020 – the beat goes on

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note reviews what 2019 meant for investors and takes a look at the outlook for 2020. The key points are as follows:

• 2019 saw economic and profit growth slow, recession fears increase and the US trade wars ramp up, but solid investment returns as monetary policy eased, bond yields fell and demand for unlisted assets remained strong.

• 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.

• Against this backdrop, share markets are likely to see reasonable but more constrained & volatile returns, and bond yields are likely to back up resulting in good but more modest returns from a diversified mix of assets.

The main things to keep an eye on are: the trade wars, the US election, global growth, Chinese growth, and fiscal versus monetary stimulus in Australia.

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Why super and growth assets like shares really are long-term investments

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at why super and growth assets like shares should be seen as long term investments. The key points are as follows:

• 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.

• The best approach is to simply recognise that super and investing in shares is a long-term investment.

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Five reasons why I am not so fussed about the global outlook

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist.

The attached note looks at five reasons why I am not so fussed about the global outlook. The key points are as follows:

• 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. In particular, there is good reason to expect a pick-up in global growth over the next 12 months. This should help underpin further gains in share markets over the next 6-12 months.

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More 21 great investment quotes

Shane Oliver, Head of Investment Strategy and Chief Economist.

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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Will the world slip up on oil again? – after oil prices spike as attacks disrupt Saudi production

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note takes a look at the risk posed to the global and Australian economies from the spike in oil prices. Key points are as follows:

• Oil prices have risen over the last few days reflecting drone attacks that impact 6% of world oil supply.

• The choke point for global growth from higher oil prices is normally a doubling in prices. We are a long way from that just yet. Key to watch will be how long the supply disruption lasts, whether there are more attacks and retaliation from Saudi Arabia and the US.

• A significant spike in Australian petrol prices would pose a further threat to consumer spending and growth in Australia, adding to pressure on the RBA to ease further.

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Australian house prices back from the abyss - seven things you need to know about the Australian property market

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note takes a look at the outlook for the Australian residential property market. The key points are as follows:

• The Australian housing market remains far more complicated than optimists & doomsters portray it to be.

• Yes, it's expensive and heavily indebted but talk of mortgage stress is overstated & it's been undersupplied.

• The 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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Nine reasons why recession remains unlikely in Australia

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital.

The attached note looks at the risk of recession in Australia. The key points are as follows:

• Australian growth is likely to remain weak over the next year. Expect further monetary & fiscal stimulus.

• 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.

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Negative rates, QE & other measures the RBA may deploy – why? will it work? what would it mean for investors?

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital.

This article talks about the negative rates, QE & other measures the RBA may deploy :

The key points are as follow :

• The RBA is likely to first exhaust conventional easing by cutting the cash rate to 0.5% by year end before deploying unconventional measures beyond forward guidance which is already being used.

• Unconventional 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.

• For investors it means low interest rates for even longer.

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Escalating US-China trade war – triggering (another) correction in share markets

Shane Oliver, AMP

After a third round of talks made little progress last week, the US/China trade war has escalated badly with tit for tat moves on an almost daily basis by each side. This has seen share markets fall sharply with US, global and Australian shares down about 5-6% from recent highs and safe haven assets like bonds and gold benefiting on the back of worries about the global growth outlook. This note looks at the key issues.

The key points are as follows:

• The trade war between the US and China is escalating, posing a rising threat to global growth

• Although we remain of the view that a deal will be reached, the risk has increased

• Share markets may need to fall further in the short term to remind both sides of the need for a deal and get them talking again

• However, we regard the fall in share markets as another correction rather than the start of a major bear market

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Australian growth will be constrained but here’s nine reasons why recession is unlikely

Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Capital

For some time our view has been a less upbeat on the Australian economy than the consensus and notably the RBA. The reasons were simple. The housing cycle has turned down and this is weighing on consumer spending. And this is at a time when the risks to the global economy have increased as the trade war threat has ramped up again. All at a time when high levels of underemployment are keeping a lid on wages growth and, along with technology and competition, inflation

But the gloom around the Australian economy seems to have gone over the top lately with all the talk around rate cuts adding to the sense of malaise and more and more talk about a recession being inevitable. There must be some positives around. And there are! So, to inject some balance into the debate around Australia here is a list of positives. They are partly why we don’t see Australia as being about to plunge into recession.

The key points are as follows:

• Australia’s current accounts deficit has collapsed

• The Australian Dollar helps stabilise the economy

• The drag from falling mining investment is over

• There is scope for extra fiscal stimulus

• Infrastructure spending is booming

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The $A still has more downside, but a lot of the weakness is behind us

Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Capital

While some have expressed surprise at the recent resilience in the value of the Australian dollar around the $US0.69-0.70 level despite weak Australian growth and Reserve Bank rate cuts, from a big picture sense it has already fallen a long way. It’s down 37% from a multi-decade high of $US1.10 in 2011 and it’s down 15% from a high in January last year of $US0.81. So, having met our long-held expectation for a fall to around or just below $US0.70 and given its recent resilience now is an appropriate time to take a look at its outlook.

The key points are as follows:

• The Australian dollar likely faces more downside as Australian growth is weaker than US growth and the RBA is likely to cut more than the Fed. However, downside may be limited to around $US0.65 given that the $A has already had a large fall, short positions in the $A are large, the iron ore price remains high (for now) and the Fed is also heading towards rate cuts.

• Given the downside risks for the $A and that being short the $A is a good hedge against threats to the global outlook it still makes sense for Australian investors to maintain a decent exposure to foreign currency via un-hedged global investments.

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The nine most important things I have learned about investing over the past 35 years

Dr Shane Oliver
AMP Capital

I have been working in and around investment markets for 35 years now. A lot has happened over that time. The 1987 crash, the recession Australia had to have, the Asian crisis, the tech boom/tech wreck, the mining boom, the Global Financial Crisis, the Eurozone crisis. Financial deregulation, financial reregulation. The end of the cold war, US domination, the rise of Asia and then China. And so on. But as someone once observed the more things change the more they stay the same. 

The key points are as follows:

• There is always a cycle

• The crowd gets it wrong at extremes

• What you pay for an investment matters a lot

• Getting markets right is not as easy as you think

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Australia slides into a “per capita recession”

This article looks at the outlook for the Australian economy following another quarter of very weak growth and what it means for investors.

 The key points are as follows

• Australian growth slowed even more in the December quarter. Growth may bounce back a bit this year, but the housing downturn will likely constrain it to around 2-2.5%.

• As a result, unemployment is likely to drift up and wages growth and inflation remain lower for longer.

• The RBA is on track to cut rates this year and the housing downturn will likely see Australian shares continue to underperform global shares.

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Five charts and a table that are critical to watch regarding the global economy and markets this year

This note looks at  five charts and a table that are critical to watch this year regarding the outlook for the global economy and markets.

 The key points are as follows:

• After a strong rebound since December share markets are at risk of a short-term pull back. However, despite this we see this year as being a decent year for share market returns.

• Five key global charts to watch as to whether this will be the case are: global business conditions PMIs; global inflation; the US yield curve; the US dollar; and global trade growth.

• US recession indicators remain ok, but the yield curve is worth watching.

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Four reasons the global economic outlook for 2019 looks positive

Shane Oliver, Head of Investment Strategy and Chief Economist.

Many investors were rattled by the equity market falls in late 2018, but Dr Shane Oliver says there are a number of reasons to suggest that in 2019 a well-diversified portfolio should deliver reasonable returns.

The main point are as follow :

• This is a “mid-cycle” correction

• No full-blown recession

• Oil prices falling

• Modest rate hikes or even cuts

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The five big fears that shaped 2018

Shane Oliver, Head of Investment Strategy and Chief Economist.

It was always likely that 2018 would under perform compared to 2017, however five big fears shaped the market more than anyone had imagined.

The main point are as follow :

• Fear of the Fed

• President Trump’s trade war

• China slowdown

• Global desynchronisation

• US dollar strength

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Review of 2018, outlook for 2019 – another cycle extension

Shane Oliver, Head of Investment Strategy and Chief Economist.

The following 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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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 following note takes a look at the current worry list for global investors.

The key points are as follows:

• It’s still too early to be sure that the pullback in shares seen last month 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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