Bad news sells!
When you read the news, sometimes it can feel like the only things reported are terrible, depressing events. Why do the media concentrate on the bad things in life, rather than the good?
Perhaps the writer is drawn into reporting bad news because a sudden disaster (like the 30 day, or so, free fall of global investment markets) is more compelling than the recovery, as has been experienced in the past nine weeks across global investment markets, yet lightly reported upon in the general press.
Anyway, enough of the bad news – it’s all good this week.
Global investment markets hit their all-time highs in mid-February 2020, before plummeting up to 40% within the space of 30 days or so, due to all things COVID-19.
The first quarter of 2020 was for many markets around the world, the worst on record – everything fell, the S&P 500, Dow Jones, Nasdaq, our own All Ordinaries and so on.
Since 23 March 2020 there has been (some might suggest) an equally amazing recovery.
As of Tuesday (26 May), the Australian share market enjoyed its best day in seven weeks, amid optimism over a gradual reopening of the world economy.
The broader All Ordinaries (our top 500 companies) was up 160 points, or 2.79 per cent higher, at 5,889.9, while the more popularly known ASX 200 was up 164.4 points, or 2.93 per cent, at 5,780 points.
That places the ASX 200 up 5.15 per cent on the week and at its highest level since 10 March. Many equity analysts described this as "extraordinary".
To put these gains into perspective, the ASX 200 has now recovered 31.2 per cent since its 23 March nadir, leaving it just 19.6 per cent below its 20 February peak – all this with unprecedented events happening around the entire world.
As I write this update (27 May) our big four banks are all up, ANZ close to 10 per cent on the day as confidence and optimism return to investment markets as our economy slowly starts to come back to life.
……more good news and this time from a mistake!
The much maligned Government error in overstating the Jobkeeper budget (all borrowed money) by approximately $60 BILLION!
This blunder should be rejoiced, but bad news sells, good / positive news does not!
According to Christopher Joye of Coolabah Capital Investments fame, we should be celebrating the fact that Australia has outperformed most other countries around the world, and will not need to take on $60 billion of extra debt that future generations of Australians, including our children, will have to repay.
He goes on to say that the $60 billion saving on JobKeeper is a nontrivial victory for the Prime Minister Scott Morrison and the Treasurer Joshua Frydenberg, because they have significantly under promised and over delivered with their execution of Australia's COVID-19 response strategy.
This also has wide-ranging consequences for other important issues; Standard & Poor's put Australia's prized AAA sovereign credit rating on "negative outlook" for a 1-in-3 probability of a downgrade to AA over the next two years on the basis of the government's published fiscal response and the assumed deterioration in our finances that flowed from it.
S&P then also automatically put bank credit ratings on the same negative outlook given these ratings partially hinge on the sovereign's rating. As it turns out, the government's fiscal spending will be a fraction of what was originally proposed because of its outstanding success.
A key point no doubt supporting the big four banks share price run this week.
In closing, we firmly retain our stance that diversification is always important and even more so in terms of a stressed environment with higher volatility and dispersion. That means portfolios should generally have allocations to a range of asset classes; except for aggressive investors where only growth assets are held, however in this case it would be a range of growth assets.
We also continue to stress the importance of active management. Now is when active asset managers really earn their fees – i.e. when volatility is high, when dispersion across and within asset classes and sectors remains elevated, and when new equity and bond issuance is coming thick and fast.
Hopefully more good news to follow.
The Australian equity market (as measured by the S&P/ASX 200) started the year off much like the previous finished, although most of the steam had been taken out of the rally with January producing a solid +1.20% return. February was much more muted with the uncertainty of an imminent reporting season hanging over the market however with better-than-expected results, coupled with softer-than-expected domestic inflation data, March provided some highlights as Australian shares hit new record highs. The quarter ended on a high with March producing +3.27% closing the quarter off with an attractive +5.53%.
2023 made for another very interesting year in investment markets as macro / regime driven events resulted in extreme shifts in investor sentiment on an almost monthly basis. Investors chose to shoot first and ask questions later in what can best be described as a year of maximum noise.
The Australian equity market (as measured by the S&P/ASX 200) started the September quarter with a flurry but ended up in the red as the global “higher-for-longer” narrative (interest rates) coupled with the ever-increasing cost of living concerns caused consumer confidence to wane.