VANECK VIEWPOINT TM GLOBAL ECONOMIC PERSPECTIVES - VANECK AUSTRALIA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
VanEck ViewPoint™ 2 Market review Chart 1: Index returns in the March 2020 quarter Gold The last quarter seems like something out of a science fiction movie. A virus pandemic, Australian Fixed Income Global Fixed Income an oil crisis, financial market capitulation, toilet paper hoarding and the media’s, China Equities particularly social media, ubiquitous coverage and unrelenting focus on the negative. Australian Bank Bills What is missing in the background to this movie is a score to match, it appears Japanese Equities US Equities Mozart’s Requiem in D Minor would be fitting. It’s no wonder many people feel like we Global Equities are in the eye of the financial storm where liquidity reigns as king and there is no place Emerging Markets to hide but cash. The pandemic has led to a credit crunch where corporate earnings and European Equities UK Equities cash flow are the centre of the current liquidity predicament. USA Small Caps Australian Equities We live in a highly interconnected and globalised world. The COVID-19 pandemic Australian Small Caps is bringing about an unprecedented economic halt to all productivity. The market 30% 20% 10% 0% 10% 20% 30% crash deemed a ‘black swan’ event has not been isolated to equities but also to credit Source: Bloomberg, 1 January to 27 March 2020, returns in Australian dollars. International Equities is MSCI World ex Australia Index, and bond markets. The lack of a reliable asset to hedge is unprecedented. In the Australian Equities is S&P/ASX 200 Accumulation Index, Australian Fixed Income is Bloomberg AusBond Composite 0+ yrs Index, Global Fixed Income is Bloomberg Global Aggregate Bond Hedged AUD Index, Australian Bank Bills is Bloomberg AusBond Bank early stages of the pandemic, investors piled into government bonds however yields Bill Index, Emerging Markets is MSCI Emerging Markets Index, Gold is Gold Spot US$/oz, Australian Small Caps is S&P/ASX Small Ordinaries Index, US Small Caps is Russell 2000 Index, US Equities is S&P 500 Index, UK Equities is FTSE 100 Index, Japanese Equities climbed erratically and the pursuit to a safe harbour was limited. is Nikkei 225 Index, European Equities is MSCI Europe Index, Chine equities is CSI 300 Index. For the quarter 27 March 2020, gold bullion (in Australian dollar terms) led the charge as investors sought protection. Ironically in the place where it all started, Chinese Chart 2: Global and Australian equity sectors March 2020 quarterly performance equities have outperformed developed markets and offered absolute positive returns. 10% Australia Global It was no surprise to see that both in Australia and globally the best performing sectors were consumer staples and healthcare. 0% -10% The current monetary stimulus efforts by central banks – including but not limited to the -20% Reserve Bank, ECB, Bank of Japan and the US Federal Reserve – combined with the fiscal stimulus by most governments is aiming to thwart the impact to businesses and -30% households. These are unchartered waters as we navigate the eye of the financial and -40% health storm upon us. We are yet to reach ‘peak pandemic’ and only with time and the -50% benefit of hindsight will we be able to assess the true devastation of the destruction of -60% wealth and human loss. Investor’s constitutions are being tested like no other time. Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Tele- communications Utilities “Without courage, all other virtues lose their meaning.” Source: Bloomberg, 1 January to 27 March 2020, returns in Australian dollars. Consumer discretionary is MSCI World Consumer Discretionary Index / S&P/ASX 200 Consumer Discretionary Index, Financials is MSCI World Financials Index / S&P/ASX 200 Financials Index, Materials is MSCI World Materials Index / S&P/ASX 200 Materials Index, Healthcare is MSCI World Heath care Index / S&P/ASX – Winston Churchill 200 Heath care Index, Utilities is MSCI World Utilities Index / S&P/ASX 200 Utilities Index, Property is MSCI World REIT Index / S&P/ ASX 200 AREIT Index, Consumer Staples is MSCI World Consumer Staples Index / S&P/ASX 200 Consumer Staples Index, Information Technology is MSCI World Information Technology Index / S&P/ASX 200 Information Technology Index, Energy is MSCI World Energy Index / S&P/ASX 200 Energy Index, Industrials is MSCI World Industrials Index / S&P/ASX 200 Industrials Index, Communications is MSCI World Telecommunications Index / S&P/ASX 200 Telecommunications Index.
Global economic perspectives, March 2020 3 Black Swan time Chart 3: Q4 2019 data was pointing the right direction, led by the US Global PMIs US ISM Eurozone EM China Back in December, markets were on a tear. Global growth, led by the US, was 62 60 heading in the right direction. Good news was taken to heart and fully priced, bad news was discounted or ignored. Hindsight is a marvelous thing, but hubris often 60 55 precedes payback! 58 56 50 While always cognisant that good times do not last forever, parts of the equity markets US and Eurozone EM and China appeared to be overvalued and corporate balance sheets and corporate debt were 54 45 not in great shape. We’d also expressed concern about global, just-in-time, supply 52 chains in the then trade-war era and its subsequent pause (remember the trade war?). 50 40 It’s the definition of Black Swans that you don’t see them coming. Two have sailed into 48 35 view: COVID-19 and an oil shock. In some ways they offset, in others they amplify. And 46 it’s early days to have clarity on how big or how long-lasting their impact will be. 44 30 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 Nov 18 Jan 19 Mar 19 May 19 Jul 19 Sep 19 Nov 19 Jan 20 Any action central banks take to stimulate a weakened economy is likely to lack impact in the short term. There are two aspects that make a coronavirus economy extremely Source: Bloomberg LP. Data as of February 2020. difficult to stimulate. First, this is a deflationary shock with declines or stoppages in work, travel, leisure and other forms of economic activity. Second, it is likely to create shortages due to the interruption of global supply chains, which would normally be Chart 4: Trade war pause had led to peace dividends everywhere inflationary. No amount of rate cuts or quantitative easing will have much impact until US-China trade war and GDP growth people and businesses are able to resume normal activities. 4 Closed Open At this stage, markets are caught in a risk unwind, which in turn has unleashed a value 3.5 at Risk (VAR) storm and a classic liquidity squeeze. How far and how long markets stay 3 unhinged will depend on the quality and quantity of the policy response and how Closed economies quickly the world shakes off COVID-19. 2.5 GDP Growth % While we remain positive the impact of COVID-19 will be short-lived, talk of a rapid 2 V shaped recovery by mid-year might be too optimistic. There will be repercussions 1.5 throughout 2020. 1 The slump in oil prices will be a supply boost for energy consumers. Though it will be Open economies 0.5 more problematic for high cost energy producing nations. 0 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 Source: VanEck Research, Bloomberg LP.
VanEck ViewPoint™ 4 Global policy response Chart 5: Where the liquidity is going to come from? Major central banks’ balance sheets (% world GDP) 22 Central bankers in developed markets (DM) have landed in their nightmare scenario. 20 They have little to no ammunition left. Cutting rates and pumping cash worked for the 18 GFC because it was principally a financial crisis. All monetary policy can achieve this 16 time is to provide cheap liquidity to calm markets. To date this has not helped. Programs PBoC 14 to help companies, especially SMEs, cope with cash flow problems could be crucial. 12 Fiscal policy should be more potent – although not in the short term. Until the pandemic 10 BoJ abates, most of what it can do is provide income support for dislocated individuals and 8 companies, rather than bolster fresh spending. It needs to help ensure companies and 6 ECB individuals are in a position to contribute to recovery when the time comes – insolvent 4 or chronically indebted companies or households cannot. Governments around the 2 Fed OECD world have, by and large, grasped this. While the first-round responses were 0 Jan 06 Jun 06 Nov 06 Apr 07 Sep 07 Feb 08 Jul 08 Dec 08 May 09 Oct 09 Mar 10 Aug 10 Jan 11 Jun 11 Nov 11 Apr 12 Sep 12 Feb 13 Jul 13 Dec 13 May 14 Oct 14 Mar 15 Aug 15 Jan 16 Jun 16 Nov 16 Apr 17 Sep 17 Feb 18 Jul 18 Dec 18 May 19 Oct 19 out of the GFC playbook (an attempted modest demand boost coupled to market liquidity measures) the second-round packages have been much larger and aimed at underpinning incomes and balance sheets. But the problem of magnitude remains. Source: VanEck Research, Bloomberg LP. Data as of 28 February 2020. No one can say with confidence how big a response is required. With credit markets already strained (more below) and corporate balance sheets loaded, it’s doubtful the Chart 6: Emerging markets had room to move before COVID-19 liquidity measures proposed will succeed given the likely duration of the crisis. Our Real policy rates in selected EM and DM, % best guess is the crisis is likely to hit 2020 global growth by 10 per cent – a massive hit, concentrated in the second quarter which may be down 30 per cent at an annualised rate. 4 DM DM average EM EM average While some governments have announced packages totalling 10 per cent of GDP in 3 dollar terms, these are, so far, over-announcements adding guarantees and liquidity facilities to actual dollars (Australia is an example of this). Given the unknowable 2 scale of the hit, chasing valuation levels is a pretty pointless task. Markets will start to 1 heal when the virus is clearly under control; at which point the depth of the growth, balance sheet and earnings hits will be calculable. 0 There appears to be nowhere to hide. Except perhaps emerging markets (EM). While -1 these are high beta markets and will get hurt by a soaring US dollar in the short term, -2 they may be better performers in the medium term. -3 At least EM policy makers have a little more room to move, so like the GFC in which EM average Turkey Philippines Dom Rep Brazil Colombia Uruguay India Indonesia S Africa Russia Mexico Ukraine Fed Australia ECB Japan Chile Hungary Poland Argentina Czech Thailand Peru China DM average UK China was able to be a part of the stimulus story, we expect some emerging markets again to be stronger as a result of this crisis. Source: VanEck Research, Bloomberg LP. Data as of 19 March 2020. Nominal policy rates adjusted for 12-month ahead inflation expectations.
Global economic perspectives, March 2020 5 China Chart 7: China’s flattening curve China COVID-19 cases and deaths have moderated Total cases Total deaths China’s regime has one big advantage in dealing with an epidemic: they can issue 90,000 10,000 absolute orders to citizens and companies to shut down and isolate. 9,000 80,000 They also have a serious disadvantage: information and social control. Coupled with 70,000 8,000 obsessive image protection, this means that vital information to avert problems is slow to 60,000 7,000 arrive. It also means outsiders are likely to be highly sceptical about any “good news”. Total deaths 6,000 Total cases 50,000 5,000 Thus, China’s response to COVID-19 was both late – and drastic. Widespread 40,000 4,000 economic lockdown means economic output has plummeted, destroying production 30,000 3,000 chains across the globe. 20,000 2,000 As early as the first week of March, 75% of US companies were already experiencing 10,000 1,000 supply chain disruptions, according to a survey by the Institute of Supply Management 0 0 (ISM). Revenue forecasts for the year had already been downgraded by 5.6% on 31 Dec 19 7 Jan 20 14 Jan 20 21 Jan 20 28 Jan 20 4 Feb 20 11 Feb 20 18 Feb 20 25 Feb 20 3 Mar 20 10 Mar 20 17 Mar 20 average. This will be the tip of the iceberg. As we have mentioned previously, in respect of trade and technology tussles, the Source: China National Health Commission. high tide of globalisation has passed. The demonstration of how fragile supply chains are will exacerbate the recoil. Blamestorming over the origins of the pandemic will exacerbate antipathy between the US and China. Chart 8: China encouraging credit China credit aggregates, monthly changes (bn CNY) According to the China National Health Commission new cases of COVID-19 in 2000 24 China have moderated and the sum of confirmed and suspected cases have trended 1800 downwards. Chinese are starting to return to work. The best indicator of a turnaround 22 1600 New loans up in Chinese output will be other countries’ imports from China. This data will only be Reserve Requirements, % 1400 20 available with a considerable lag. New Loans, bn CNY 1200 18 The supply shock is greatest in China, with food prices surging (an earlier swine flu 1000 16 outbreak exacerbated this). But the Chinese authorities face CPI inflation in excess 800 of 5%, with interest rates of 1.5% for one-year deposits. Cutting rates risks stoking 600 14 inflation, as well as eroding the real value of household savings. On the other hand, 400 Reserve 12 already burgeoning fiscal spending will likely have to be directed to supporting 200 requirements downs bloated corporate balance sheets. Nonetheless, we expect China will continue to 0 10 throw policy boosts at the economy. They have little choice and they have room. Nov 11 Apr 12 Sep 12 Feb 13 Jul 13 Dec 13 May 14 Oct 14 Mar 15 Aug 15 Jan 16 Jun 16 Nov 16 Apr 17 Sep 17 Feb 18 Jul 18 Dec 18 May 19 Source: Bloomberg LP.
VanEck ViewPoint™ 6 United States Chart 9: The Fed’s recent rate cuts are resulting in tighter financial conditions like in 2007–2008 Fed’s cutting cycles and US financial conditions (Chicago Fed’s adjusted index) Heading into the turn of the year, the US economy was in a Goldilocks spot: growth was 5 -> tightening moderate, labour markets were firm and wage growth was picking up. For an economy near full employment, it was about the best that could be hoped for: not too hot 4 (which would lead to rate hikes); or too cold (sluggish growth sliding into recession). US Adjusted Financial Conditions Index Unfortunately, the US is now looking at the downside of both black swans. Like 3 elsewhere, COVID-19 is hurting businesses. And, while lower oil prices will help 1981–1983 household budgets, the US oil sector may suffer. 1974–1975 2007–2008 2 The longest economic expansion and bull market in history has come to an end in 2020. 1980 The Fed cut rates by 50bps as its first step and this was insufficient to prevent financial 1 conditions tightening. As the severity of the outlook deteriorated, with rates dropped to the lower bound and the difference between QE and non-QE has now evaporated. 1989–1992 accommodative
Global economic perspectives, March 2020 7 Europe Chart 11: The ECB was maxed out before ECB balance sheet and Eurozone GDP growth Eurozone GDP growth ECB balance sheet The Eurozone is a weak link in the global economy. Most important, the currency zone is not optimal – one currency with many fiscal and financial systems underneath 45 3.5 makes no sense, as is acknowledged by European officials. Crisis was supposed to 40 3 provide the excuse for creating an optimal currency zone, but even the GFC and the Eurozone Real GDP Growth, % ECB Balance Sheet, % GDP European crises of 2013 didn’t result in fixing this basic structural problem. Until this 35 2.5 is done, there will always be doubts about longer-term sustainability of the monetary union and its currency, the euro. 30 2 In the past couple of years, it also became increasingly clear that the Eurozone’s 25 1.5 monetary policy setup is largely exhausted in its current configuration. Even though the ECB had been actively expanding its balance sheet and lowering its policy rate – 20 1 which drove the shadow policy rate to mind-boggling -7.28%, the regional real GDP 15 0.5 growth no longer responds to the stimulus. The ECB is truly stuck: Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 • if it continues to cut rates further, it might irreparably damage the financial sector; Source: Bloomberg, February 2020. • if it tightens, this might push many European corporates over the edge. These are the reasons that might have prompted the German government to abandon its decade-long “black zero” principle of balanced budgets and approve Chart 12: Eurozone to ‘restart’ in relatively worse shape a fiscal stimulus package to minimize the economic damage from the coronavirus. US dollar and relative macro surprises The package is on the small side, but its significance and symbolism should not US-Eurozone Macro Surprise Differential Broad US Dollar Index be underestimated both in terms of a near-term cyclical impact and a longer-term 150 100.0 support for growth. 99.5 We can only hope that at some point there will be a wider acceptance of structural 100 99.0 US-Eurozone Macro Surprise Differential and institutional reforms in the Eurozone and the European Union. There were some 98.5 US dollar Index positive country-specific examples in the past few years, but more needs to be done. 50 98.0 For now, the region’s structural and institutional rigidity (such as reliance on “national 97.5 champions”) remains a major impediment to lifting its potential output beyond 0 97.0 meager numbers that we see on a regular basis. The problem with being hopeful of 96.5 further structural reforms is the fact that Europeans never supported currency union. So asking voters to pay a price during crisis, for something they never supported, -50 96.0 strikes us a politically fraught. 95.5 -100 95.0 Sept 19 May 19 Aug 19 Nov 19 Dec 19 Feb 19 Oct 19 Apr 19 Jun 19 Jan 20 Jul 19 Mar 9 Source: Bloomberg LP.
VanEck ViewPoint™ 8 Gold Chart 13: Comparing bulls Current market, 2015 to current While the sell-off in gold stocks was painful, it is not unusual in the middle of a stock $1,700 market panic. The last such example was during the 2008 financial crisis. Following $1,600 Lehman’s bankruptcy in September that year, gold declined just 10% before trending $1,700 higher about a month later. Over the same period in 2008, the NYSE Arca Gold miners $1,500 $1,600 Index fell 48%, but by December 16 it had recovered to its pre-Lehman level in a classic dB ase $1,400 T ren V-shaped recovery. Contrast this with the S&P 500 that didn’t reach a bottom until 6 $1,500 rr ent $/oz Cu March 2009 after falling 46%. The S&P 500 didn’t recover its post-Lehman losses until se $1,300 Ba re nd $1,400 tT January 2011. So, while the general stock market was struggling to recover for over two rre n $/oz Cu years, the gold stock market quickly rebounded and went on to bull market gains. $1,200 $1,300 ase rend B We believe the markets will look back on COVID-19 “black swan” as a buying $1,100 Early T $1,200 opportunity for gold shares. However, whether the worst is behind us is anyone’s guess. ase $1,000 rend B $1,100 Early T Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Sep 18 Mar 19 Sept 19 Sept 19 Mar 20 Sept 20 Sept 20 As markets gyrate, gold investors must not lose sight of the bigger picture. For over a year, falling real rates have primarily driven the gold price. With many markets in $1,000 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Sep 18 Mar 19 Mar 20 disarray amid the widening outbreak, gold has not responded to the fall in real rates. Once the volatility subsides, we expect real rates to continue driving gold prices. Chart 14: Comparing bulls $2,200 Gold and gold stocks are in the middle of a secular bull market that started in December Current market similar to gold’s last secular rally, 2001 to 2012 $2,000 2015 when gold bottomed out at US$1,050 per ounce. The two gold price charts $2,200 $1,800 highlight the technical similarities between the current bull run and the 2001 – 2011 rally. $2,000 $1,600 Ba se nd The top chart tracks the price trend of the current bull market. It began with a weakly $1,800 $1,400 Tr e ate rising trend for several years, then accelerated to a stronger trend in 2019. Likewise, in tim se $/oz $1,600 $1,200 We might be here Ul Ba nd ase the bottom chart an early trend of weakly rising prices broke into a stronger trend in r t Trend B Trr e $1,400 $1,000 t C e u en a 2005. In the earlier market (bottom chart), the ultimate trend followed the financial crisis tim $/oz $1,200 $800 We might be here Ul se in 2008. The red circle shows roughly where the current market might be in the larger nd Ba nt Tre $1,000 $600 Early Trend Base Curre scheme of things, using the 2001 – 2011 market as an analogy. $800 $400 Fundamentally, each of these markets had different drivers, with the early 2000s $600 $200 Early Trend Base Feb 11 Feb 11 Feb 01 Feb 01 Feb 02 Feb 02 Feb 03 Feb 03 Feb 04 Feb 04 Feb 05 Feb 05 Feb 06 Feb 06 Feb 07 Feb 07 Feb 08 Feb 08 Feb 10 Feb 10 Feb 09 Feb 09 Feb 12 Feb 12 $400 market driven by the fallout from the tech bust and US dollar weakness. The early $200 years of the current market were driven by geopolitical risks and Fed activity. Regardless of specific drivers, both markets rose with increasing risks to the global financial system where gold was bought as a safe store of wealth. Source: Bloomberg, VanEck. Data as of 28 February, 2020. Past performance is not a reliable indicator of future performance. Chart is for illustrative purposes only.
Global economic perspectives, March 2020 9 Emerging markets bonds Chart 15: Emerging markets have less debt than developed markets Radar chart comparing develop markets and emerging markets PC/GDP Some emerging markets look set to acquit themselves during the COVID-19 crisis, 2 L/D GGD/GDP as they did during the GFC. And, for the same basic reasons – strong fiscal balance Solvency sheets, and central banks focused on maintaining high real interest rates. Emerging CE/A 1 TXD/GDP Liquidity market economies generally have much lower debt stocks, whether private or public. Structural 0 For example, the biggest emerging market economies have private credit (as a Average percent of GDP) in line with the global mean, whereas the G-10 developed markets EDB RES/IMP G10 -1 have private credit almost 2 standard deviations higher than the global average. We EM-26 start with the example of private credit because these are the markets that remain -2 unresolved by policymakers at this moment (more on that below). GDP/CAP RES/M2 Secondly, emerging markets central banks are very orthodox, and maintain high real interest rates, especially in comparison to those of the developed markets. Earlier in this FDI/GDP M2/GDP ViewPoint, Chart 6 highlighted some of these real policy rates in emerging markets and developed markets coming into the crisis. Average emerging markets real policy rate CAB/GDP XDS/CAX is 0.84% whereas the average real policy rate in developed markets is -1.17%. FB/GDP REV/GDP Of course, emerging market debt exists in the context of global markets and economies in disarray, so a necessary element of the rebound we expect in emerging Source: VanEck, Bloomberg as at end of February. markets is some end to the current crisis. We see this forthcoming in the coming weeks/months due to the incredible monetary and fiscal stimulus developed markets and emerging markets economies are enacting. We expect the US authorities, in Chart 16: Emerging market’s lower debt particular, to enact forms of CE (credit easing) to address the still-unresolved issue of Domestic credit/GDP Ratio (%) non-functioning credit markets. We also expect the Fed to extend its US dollar swaps 200 187.2 with key emerging markets central banks, providing dollar liquidity and preventing 180 vicious cycles resulting from US dollar demand. Finally, we’d note that the collapse 160 in oil prices has been conflated with a demand shock in emerging markets, but it is 140 134.7 really a supply shock. Lower oil prices benefit emerging markets, most of which are oil 120 importers and have consumption baskets with a large energy component, meaning 100 86.9 85.9 that real interest rates are higher and give policymakers that much more room to ease. 80 63.2 60 57 45.5 40 20 0 Eurozone UK US EM Aaa-A3 EM Baa1-Baa3 EM Ba1-Ba3 EM B1-C Source: VanEck, Bloomberg as at end of February.
VanEck ViewPoint™ 10 Australia’s luck runs out Chart: 17: RBA action in 2019 had only increased house prices CoreLogic Home Property Value Index rebased to 100 1/1/2019 Australia has been skating on thin ice for a while now: private domestic demand has Melbourne All Dwellings Index Sydney All Dwellings Index Adelaide All Dwellings Index Brisbane All Dwellings Index Perth All Dwellings Index RBA cash target rate been close to zero, with government spending and exports keeping the economy’s 115 head above water. 2.5 110 Lacklustre wages growth has led to weak consumer spending, in turn suppressing 2 non-mining investment. After earlier surges, mining investment and housing 105 Dwellings Index Values investment (notably apartments) have been unwinding. Were it to continue, the 100 1.5 house price pick-up would see housing construction start to rebound. RBA (%) 95 Employment growth has been a highlight – although led by lower paid sectors, such 1 as (government funded) healthcare and services – which also have lower measured 90 productivity. 0.5 85 The RBA spent much of 2019 begging the Government to be proactive. The RBA was aware of how little useful ammunition it had left in its barrel. Indeed, last years’ 80 0 Jan 17 Feb 17 Jul 17 Sep 17 Nov 17 Mar 18 May 18 Jul 18 Sep 18 Nov 18 Feb 19 May 19 Jul 19 Sep 19 Nov 19 interest rate cuts had reflated the capital city house price bubble; while undermining May 17 Mar 19 Mar 20 Feb 18 Jan 20 broader confidence and interest incomes. Like other central banks, the RBA felt fiscal policy was a more potent weapon. With Source: CoreLogic, RBA, to 24 March 2020. real interest rates so low; and (in Australia’s case) government debt at very low levels, there seemed no reason not to put long term productive investments in place. Chart 18: Miner, education and tourism were major exports Australia’s top export mix Unfortunately, time ran out. Australia’s luck has turned. Last year, mining problems in Brazil boosted Australian exports and national income. This year, bushfires, COVID-19 40,000 Metal ores Coke and Coal LNG, Oil etc Education Other tourism and the oil shock will do the opposite. 35,000 Education and tourism are two of Australia’s biggest exports. Both have been 30,000 adversely impacted by bushfires and COVID-19 . 25,000 $ billion As shutdowns spread and employment and business survival gets hit, estimates 20,000 of the possible short term cost to GDP are soaring, with 10% declines possible. 15,000 Obviously the longer the virus outbreak continues, the greater will be the damage. 10,000 5,000 0 Mar 10 Aug 10 Jan 11 Jun 11 Nov 11 Apr 12 Sep 12 Feb 13 Jul 13 Dec 13 May 14 Oct 14 Mar 15 Aug 15 Jan 16 Jun 16 Nov 16 Apr 17 Sep 17 Feb 18 Jul 18 Dec 18 May 19 Oct 19 Source: ABS.
Global economic perspectives, March 2020 11 Fiscal response Chart 19: Spreads in corporate bonds have continued to widen despite RBA easing Australian iTraxx past ten years The Federal Government has given up on its budget surplus obsession and has now 300 made multiple fiscal responses. The first, weighed in at a bit over 1 per cent of GDP over the forward estimates, with more than half expected in the remainder of this 250 fiscal year. The second looks more like 4-5 per cent – although it has been advertised as 10 per cent. Around half consists of lending, guarantees and RBA liquidity. The 200 Credit Spreads (bps) third is the $130bn JobKeeper and JobSeeker programs. 150 In the GFC, Treasury’s memorable advice was “go early, go hard, go households.” It worked to prop up demand sufficiently that Australia escaped a recession (alone 100 among G20 economies). Ten years of demonising that response has left the Coalition Government in a tricky political position. Nonetheless, they swallowed their pride to 50 include a one-off cash splash for pensioners and welfare recipients. The money will be quickly spent. 0 July 09 July 10 July 11 July 12 July 15 July 13 July 14 July 16 July 17 July 18 July 19 The economic response to the packages is a bit harder to read. Investment incentives are unlikely to be utilised in the near term because uncertainty and falling consumer Source: Bloomberg to 23 February 2020. demand will dominate investment business cases until the outlook clears. Cash boosts to heavily affected regions and industries are more about preserving Chart 20: Asking for more businesses from collapse rather than promoting growth. The jury is out on how Government spending to skyrocket successful this will be. But it certainly can’t hurt; and while chunks of the economy are virtually in lockdown there’s little other help available. Govt spending Private domestic demand GDP 6 Likewise, wage subsidies for apprentices and PAYG relief are both wait-and-see. With 5 the labour market still fairly slack (and likely to deteriorate), business may still let workers go and concentrate instead on shoring up the bottom line and balance sheets. 4 Though the JobKeeper and JobSeeker package which targets this very problem will go 3 a long way to prevent that. % 2 Oil price declines will be a positive for real household incomes, though less positive for 1 natural gas and coal markets. Australia is now in a recession. If COVID-19 is brought under control quickly and companies and jobs make it through without too much 0 damage it may be shallow. Any serious damage to corporate solvency or employment -1 will see a deeper and longer downturn, accompanied by a housing downturn and loan Mar 05 Nov 05 Jul 06 Mar 07 Nov 07 Jul 08 Mar 09 Nov 09 Jul 10 Mar 11 Nov 11 Jul 12 Mar 13 Nov 13 Jul 14 Mar 15 Nov 15 Jul 16 Mar 17 Nov 17 Jul 18 Mar 19 Nov 19 performance problems. The Government will do all it can to avoid this scenario. Source: ABS, RBA.
VanEck ViewPoint™ 12 Range of VanEck Vectors Exchange Traded Funds on ASX Name ASX code Index Management costs (% p.a.) Australian Broad Based Australian Equal Weight ETF MVW MVIS Australia Equal Weight Index 0.35% Australian Sector Australian Banks ETF MVB MVIS Australia Banks Index 0.28% Australian Property ETF MVA MVIS Australia A-REITs Index 0.35% Australian Resources ETF MVR MVIS Australia Resources Index 0.35% Australian Small and Mid Companies Small Companies Masters ETF MVS MVIS Small-Cap Dividend Payers Index 0.49% S&P/ASX MidCap ETF MVE S&P/ASX MidCap 50 Index 0.45% Sustainable Investing MSCI International Sustainable Equity ETF ESGI MSCI World ex Australia ex Fossil Fuel Select SRI and Low Carbon Capped Index 0.55% MSCI Australian Sustainable Equity ETF GRNV MSCI Australia IMI Select SRI Screened Index 0.35% International ChinaAMC CSI 300 ETF CETF CSI 300 Index 0.60% China New Economy ETF CNEW CSI MarketGrader China New Economy Index 0.95% MSCI Multifactor Emerging Markets Equity ETF EMKT MSCI Emerging Markets Diversified Multiple-Factor Index (AUD) 0.69% Morningstar Wide Moat ETF MOAT Morningstar Wide Moat Focus Index™ 0.49% MSCI World ex Australia Quality ETF QUAL MSCI World ex Australia Quality Index 0.40% MSCI World ex Australia Quality (Hedged) ETF QHAL MSCI World ex Australia Quality 100% Hedged to AUD Index 0.43% Global Sector FTSE Global Infrastructure (Hedged) ETF IFRA FTSE Developed Core Infrastructure 50/50 Hedged into AUD Index 0.52% FTSE International Property (Hedged) ETF REIT FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged 0.43% Gold Miners ETF GDX NYSE Arca Gold Miners Index 0.53% Australian Fixed Income Australian Corporate Bond Plus ETF PLUS Markit iBoxx AUD Corporates Yield Plus Index 0.32% Australian Floating Rate ETF FLOT Bloomberg AusBond Credit FRN 0+Yr Index 0.22% Australian Subordinated Debt ETF SUBD iBoxx AUD Investment Grade Subordinated Debt Index 0.29% Global Income Performance Benchmark VanEck Emerging Income Opportunities Active ETF 50% J.P. Morgan Emerging Market Bond Index Global Diversified Hedged AUD and 0.95% EBND (Managed Fund) 50% J.P. Morgan Government Bond-Emerging Market Index Global Diversified
Contact us vaneck.com.au VanEck-Australia info@vaneck.com.au VanEck_Au +61 2 8038 3300 VanEckAus Important notice Issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’). This is general information only about financial markets and not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision, you should read the relevant PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. PDSs are available at www.vaneck.com.au or by calling 1300 68 38 37. No member of VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return of any VanEck funds. Past performance is not a reliable indicator of future performance. VanEck is the responsible entity and issuer of units in the VanEck Vectors ETFs traded on ASX. All investments carry some level of risk. Investing in international markets has specific risks that are in addition to the typical risks associated with investing in the Australian market. These include currency/foreign exchange fluctuations, ASX trading time differences and changes in foreign regulatory and tax regulations.
You can also read