Reading time: 3 minutes
Australia’s equity market performance versus global markets has waxed and waned over recent decades. As this note seeks to demonstrate, a key driver of relative performance has been relative global sector performance: in particular, the performance of technology versus mining stocks.
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Reading time: 1 minute
There was no shortage of things to write about in 2020! Among our most-read blogs of the last 12 months were articles on the corona virus and its implications for investors, analysis of the most bitterly-contested U.S. Presidential election in history and what it might mean for the markets,
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News overnight that the United States and China would resume trade talks has understandably lifted the spirits of global investors. To my mind, the new twist in the trade saga may well suggest one thing: Trump has conceded defeat.
Why would Trump cave? Because of the growing signs that the trade war has inflicted “friendly fire”
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Reading time: 5 minutes
Given the ongoing trade war and slowing global growth, many investors are understandably concerned about the market outlook. While I feel a ‘doomsday’ scenario is unlikely anytime soon, this note nonetheless considers what investment options might be of interest to those investors who hold grave concerns –
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Global Markets
Inversion of a key US yield curve measure (the gap between US 10-year and 2-year Federal Government bond yields) sent jitters through Wall Street last week, as did further signs of softer economic growth in Europe and China. The global stock pull back continued as did the rally in bond and gold prices.
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Comments following RBA Governor Phillip Lowe’s speech
Governor Lowe’s speech* can be taken as a strong defence of not only the current inflation-targeting regime, but also the current inflation target band of 2 to 3 % over the medium term.
The Governor suggests that to change the band would
1) undermine longer-term central bank credibility and
2) entrench a low inflation “mind-set”.
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The highlight of the coming week will no doubt be Thursday’s labour force report. Given the notorious volatility in monthly employment changes, the single best measure of labour market trends remains the unemployment rate.
As seen in the charts below, the unemployment rate has been broadly trending lower since late-2014, which has been consistent with an improving trend in key labour market indicators such as the NAB employment index (from its monthly business survey) and the ANZ Jobs Ads series.
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The equity market is (relatively) cheap!
The extra-ordinary decline in local bond yields has now left the Australian equity market relatively cheap compared to bond markets.
Despite the S&P/ASX 200’s price-to-forward earnings ratio reaching a relatively high 16.1 at end-June (compared to an average of 14.2 since 2002), slumping bond yields have caused the so-called “equity-to-bond yield gap” to widen out to 4.9% (compared to an average of 2.9% since 2002).
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The seemingly imminent passage through Federal Parliament of extensive income tax cuts over the coming few years is a welcome reform, as it will give back substantial “tax drag” that has accumulated in recent years and help lower marginal income tax rates for many Australians.
Tax Drag
As seen in the chart below,
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Reading time: 5 minutes
The re-election of the LNP Morrison Government appears to be providing a timely “shot in the arm” for the Australian share market. This note suggests the ensuing policy certainty with regard to taxation is also particularly beneficial to high-yielding local shares able to offer attractive franking credits.
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