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A large audience dialled into the latest of our fortnightly ‘Virus Crisis’ webinars last week. We received many questions from those who attended. David Bassanese, BetaShares Chief Economist, has provided responses to some of the most-asked questions by attendees.
1. You mentioned V, U and L shape recovery scenarios – what about a ‘W’ recovery i.e. a jump when lockdowns are eased, followed by a larger fall if and when a second wave of the virus hits?
A ‘W’ recovery in the economy is actually a very reasonable scenario. It would imply some Q3 rebound in economic growth – after a very weak Q2 – as some restrictions are gradually erased, but then a relapse in Q4 if a second wave of infections potentially strikes, requiring renewed shutdowns. A stronger rebound could then emerge in 2021 when/if a vaccine is found. In terms of equity markets, they would naturally respond to this economic volatility.
2. What are your thoughts about the impact of the oil slump on Australian resource companies?
China stimulus could support iron-ore prices as it did during the GFC and last year’s trade wars. Resources may well outperform financials but still weaken in outright terms if we remain stuck in a global bear market.
3. Do you think the value of gold in $US will be eroded by potential $A currency appreciation?
Quite possibly next year. Our gold bullion ETF (ASX: QAU) is currency-hedged so as to reduce the impact of currency fluctuations and provide more correlated exposure to the $US gold price.
4. Is it possible that banks may not pay (or defer) interest on hybrid securities?
I believe this is unlikely, particularly as hybrids generally offer more regular and known income payments compared to dividends, which are paid at the discretion of the company. Non-payment of income on hybrids and bonds is generally quite rare and a bigger deal for banks as it could potentially indicate solvency concerns.
5. How will the Australian equities market be affected by superannuation funds selling assets because of the current early access rules?
In net terms, not too much I think. The Australian equities market should largely reflect movements in global markets and risks of enduring global recession.
6. What are your views on the real estate market?
House prices are likely to peel back somewhat over the remainder of this year due to weak economic growth and rising unemployment. Low interest rates are supportive, but not enough, to outweigh the negative from rising unemployment. Due to repayment deferrals and other measures however, I do not expect to see a lot of forced selling (which would lead to a strong house price decline of 20% or more), rather I expect a lower decline of around 5 to 10% as bidders become less willing to pay up.
If you would like to hear more, you can register here for the next webinar in the ‘Virus Crisis’ series, which will be held on 21 May 2020.