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Greenshoots emerge in the Australian economy

By Cameron Micallef · December 13 2019
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Invest

Greenshoots emerge in the Australian economy

By Cameron Micallef
December 13 2019
Reading:
egg
egg
Greenshoots emerge in the Australian economy

Greenshoots emerge in the Australian economy

author image
By Cameron Micallef · December 13 2019
Reading:
egg
egg
Greenshoots emerge in the Australian economy

Australia has embarked on 28 years of uninterrupted economic growth, which is likely to continue as low interest rates drive stronger housing and consumer spending continues, a fund manager has suggested.

According to head of Australian equities Randal Jenneke, stock markets will benefit from a stronger domestic and international economy, although it is unlikely to have a repeat of this year’s performance.

The fund manager predicts “dividend yield and capital growth to be at around 4 percent in 2020, amounting to an anticipated 8 percent total return from Australian equities”.

Over the long term, as interest rates stay low, Mr Jenneke said the Australian market deserves a premium for being higher quality, well regulated, with a high and stable dividend yield.

Mr Jenneke’s domestic views reflect his expectations for a gradual recovery in global trade and manufacturing that will favor Australia, particularly if the US and China agree to a trade war truce. 

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He believes Australia’s domestic economy is set to see improved growth in gross domestic product during the course of 2020, after a subdued lift of just 1.7 percent in 2019.

“The RBA (Reserve Bank of Australia) wisely kept its powder dry until it was needed and responded decisively to the weakening domestic economy to cut interest rates three times, pushing the official cash rate down to a record low.

“In 2020, we are likely to see interest rates cut at least once more to a new floor of 50 basis points,” Mr Jenneke said.

“While the RBA’s stimulatory power has almost been exhausted, monetary policy measures are working, with the benefit of lower interest rates being most visible in Australias housing sector. 

“Auction clearance rates in Sydney and Melbourne have nearly doubled, while home prices have risen by 5 to 10 per cent, depending on region.”

The “wealth effect” felt by consumers is not likely to flow back into the stock market in the short term with “[the] flow-on benefits to retail and housing stocks will likely lag six to 12 months, with companies that service the housing sector, without being leveraged to construction activity, expected to benefit in this environment,” Mr Jenneke predicted.

The fund manager also predicted the Morrison government will help support the Australian economy through changing the tax brackets, which could further support the retail and housing markets. 

“While some political maneuvering will be required, I would not be surprised to see the Coalition bring forward tax cuts scheduled for 2021 into 2020. This, coupled with the recent $4 billion infrastructure package, should also help to support an economic recovery next year,” he said

These thoughts are echoed by Fidelity International’s global cross-asset investment specialist, Anthony Doyle, who also believes the government will use taxation as a fiscal stimulus. 

“If you think about fiscal conservative, it’s political ideology is defined by small government, a balanced budget and lower taxes.

“If we do see any loosening on the fiscal reigns, it will be on the tax side, which tends to be popular with voters,” Mr Doyle explained.

Greenshoots emerge in the Australian economy
Greenshoots emerge in the Australian economy
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About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

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