Market Insights Retirement Services Australia
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Retirement Services Australia
Market Insights
12 August 2020 – Political Dramas
Current View:
We are carefully beginning to move investors back to specific sectors of the financial markets
following the revision of risk profiles and client comfort levels. Generally, we reiterate our view
on staying defensive in the short term given the uncertainty brought about by the pandemic as
well as the subsequent policy responses to address both health and economic crises. We also
cite geopolitical risks as a headwind for financial markets. We think that tensions will continue
to rise and expect confrontations to accelerate ahead of US elections as China becomes one
of the cornerstones of President Trump’s re-election campaign. That being said, we have
confidence in the technology, healthcare and biotechnology sectors of the market for positive
returns for the duration of the pandemic.
Update:
Major share markets inched up higher last week, suggesting a general risk-on sentiment
amongst investors. This risk appetite is backed mainly by confidence in the US government to
extend stimulus reliefs to struggling Americans, as well as central banks to support their
respective economies further by keeping an accommodative policy for an extended period of
time.
Index Coverage Weekly Return
MSCI World (ex-USA) Global ex-US +1.97%
S&P 500 US +2.45%
NASDAQ US +2.47%
S&P/ASX 200 Australia +1.30%
Euro Stoxx 600 Europe +2.03%
MSCI Emerging Markets
Emerging Markets +1.34%
(ETF)
Yet, the waiting game for the widely anticipated bill continues and the plot thickens. The work
week ended still without a deal in the US Congress due to the inability of both Democrats and
Republicans to negotiate each other’s terms. Both parties are said to be still trillions of dollars
apart on overall spending to address key issues. This Congressional impasse amid a grim
backdrop of rising coronavirus cases, dire economic conditions, and probably the upcoming
elections have prompted US President Donald Trump to issue a series of executive actions
over the weekend. These include the extension (but reduced amount) of weekly
unemployment payouts, student loan reliefs, eviction protection as well as ordering of a
temporary deferral of tax payments for some workers.
These executive actions may bring temporarily relief and serve as a bridge for struggling
Americans until Congress gets its act together but its effective implementation remains to be
seen due to a lot of contention amongst fellow politicians. Democrats and some Republicans
argue that the President’s actions provide little help, is unconstitutional, and risks the funding
of Social Security and Medicare—critical programs for millions of American retirees.
Page 1 of 7
Aside from legalities, the program is also said to be logistically-challenged. Funding a portion
of the program poses a challenge for some states as 25% of the advocated US$400 per week
jobless benefits must be paid by state governments whose budgets are already tight as a
result of the coronavirus pandemic and banks on the ratification of the upcoming stimulus bill
for additional funding as well.
Prior to the announcement of the directives relating to fiscal aid, President Trump already
made headlines as he ordered a series of actions against China by prohibiting US residents
from using or doing business with Chinese-owned Tiktok (ByteDance) and WeChat (Tencent)
apps which will be in effect next month. Moreover, it also placed sanctions on 11 Chinese
officials and their allies in Hong Kong, including Chief Executive Carrie Lam, over their roles in
curtailing political freedoms in the region.
The ban on WeChat has sent Tencent’s share price falling as much as 10% last weekend.
Trump’s move also brought other big Chinese and US tech companies with it as well due to
concerns that the deteriorating relationship between the countries will increasingly weigh on
companies, economies and markets.
Of all the recent shots fired by the Trump administration against China, including the tariffs on
Huawei, the ban on Tiktok and WeChat may potentially have the most impact. WeChat has
evolved from a messaging app into an all-purpose app that allows people to use it for
payments, e-commerce, web browsing and more. Whilst the app has limited users in the US,
the ban is still set to have broad implications because it is used by more than a billion people
and is also widely used as a communication tool with China. Banning WeChat in the US, for
example, could affect cross-border business between Chinese and American companies
which can impact various industries and commercial activities including manufacturing, selling
and settling of contracts. The move is consequential and disruptive as WeChat is said to be
widely used by the Chinese in place of email, text messages and even in bills payment. The
impact is significant as other widely used messaging apps like Facebook Messenger and
WhatsApp are blocked in China, making it harder for companies to communicate with Chinese
partners without the app.
Apple, for example, uses WeChat to communicate with people in China where the majority of
iPhones are manufactured. Discussions and decisions are made and communicated with the
help of the app. Other worst-case scenario includes American consumer brands like Walmart,
KFC and Starbucks losing a significant portion of its sales to China as Chinese buyers get
discouraged to buy coffee or chicken from these companies if they cannot opt to pay via
WeChat. Moreover, American companies may be prevented from selling its goods and
services via the app’s programs which is one of the fastest-growing avenues for e-commerce.
Other possible ramifications include the Chinese ditching Apple iPhones if WeChat becomes
unavailable in said phones via App Store. This would materially impact Apple as China is one
of their most important markets, accounting for 20% of iPhone sales.
On the virus front, global cases are showing signs of peaking, averaging at around 250,000
confirmed cases per day. The same is true for Australia based from the past 4 days of
released data, albeit the country faces a grim reality of rising fatalities as a record of 17 new
deaths were reported yesterday. This renewed virus outbreak in Victoria continues to weigh
on consumer confidence with the index inched further south to 88.6 compared to recorded
reading of 89 last week. High-frequency indicators from different sources show that
Australians have scaled back movement and have limited interactions since the second
outbreak in July were recorded.
Page 2 of 7
Chart 1: Confirmed Daily Coronavirus Cases (Global)
Source: The New York Times
Chart 2: Confirmed Daily Coronavirus Cases (Australia)
Source: Bing
Page 3 of 7
Chart 3: Australian Consumer Confidence Index (ANZ Roy Morgan)
Chart 4: CityMapper1 Mobility Index
1
CityMapper is a public transport and mapping app that track user movements
Page 4 of 7
Chart 5: Apple Mobility Trends Report
Chart 6: Restaurant Bookings via OpenTable
Because of the evident economic implications of the recent lockdown in Victoria and the
subsequent deterioration in economic outlook seen in the rising credit yields, the Reserve
Bank of Australia (RBA) had resumed its bond buying after a three-month hiatus. This move
represents the bank’s commitment to support the economy by keeping rates low, and by doing
so, also support share markets.
Overall, we remain cautious of the current market conditions as risks and uncertainty abound.
Albeit we think that the overall global recovery is still intact, much of the gains from the
reopening may already be hugely factored in the current market prices. We think that risks are
tilted to the downside especially after the US market, which is leading the share market rally,
reaches overbought levels.
Page 5 of 7Chart 7: S&P500 (US)
R Finanical Educators Pty Ltd Level 15 MLC Centre
trading as Retirement Services Deloitte Building Level 57
Australia 60 Station Street 19-29 Martin Place
ABN: 37 102 003 118 Parramatta NSW 3150 Sydney NSW 2000
help@retirementserviesaustralia.com.au T: 1300 071 107 T: 1300 071 107
retirementservicesaustralia.com.au
R Financial Educators Pty. Ltd, ABN 37 102 003 118; authorised representative of iPraxis, AR 461048. iPraxis Pty. Ltd AFSL #329337, ABN 3911436500
Page 6 of 7Yours sincerely,
The Investment Committee
Ava Juno
Macapugay Fragante
Senior Investment
Economist / Analyst
Investment
Analyst
Paul
Peter Whitelaw
Rheinberger Senior
CEO Financial
Adviser
This document has been prepared by Ipraxis Pty Ltd ABN 39 114 365 007, AFSL 329337 on behalf of R Financial Educators Pty Ltd trading as Retirement Services
Australia and RFE Group. ABN 37 102 003 118. Ity is general information only and is not intended to provide you with financial advice or take into account your
objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent
permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The PDS’s and investment research for investments
related to any investments discussed should be considered before deciding whether to acquire or hold investments discussed.
Investment advice can be obtained by calling 1300 071 107 or clicking here to organize a time to discuss your situation with a financial adviser. No company related
to R Financial Educators trading as RFE Group (RFE Group means R Financial Educators Pty Ltd ABN 37 102 003 118 and its subsidiaries) guarantees the performance
of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.
More Information
Retirement Services Australia 1300 071 107
Email help@retirementservicesaustralia.com.au
www.retirementservicesaustralia.com.au
Page 7 of 7You can also read
