Invest
4 signs of optimism that could drown out downturn fears
While we are regularly being reminded about how close Australia and the world at large is to plunging into recession, there’s still positivity to be found domestically and internationally, according to a leading economist.
4 signs of optimism that could drown out downturn fears
While we are regularly being reminded about how close Australia and the world at large is to plunging into recession, there’s still positivity to be found domestically and internationally, according to a leading economist.
In an AMP Capital article, the company’s head of investment strategy and chief economist, Shane Oliver, has outlined that despite concerns around a US and China trade war, the slowing Chinese economy, low business confidence and the recent inversion of yield curves, investors should not be too concerned.
He provided four reasons as to why he and AMP Capital remain of the view that a recession is unlikely, despite continuing volatility in investment markets.
1. ‘Twitchy Trump’
According to the economist, President Trump is getting twitchy about the negative economic effects of the trade war, evidenced by his delaying of tariffs after sharp sharemarket falls and a meeting he had with a major US bank head on the issue.
“The historical record shows that US presidents get re-elected after a first term (think Nixon, Reagan, Clinton, Bush junior and Obama) except when there were recessions in the two years before the election and unemployment is rising (think Ford, Carter and Bush senior),” Mr Oliver said, commenting that Trump would be very aware of this.
Sharemarkets have regular corrections, but major bear markets are invariably associated with recession, and so Trump is wary whenever shares take a sharp lurch lower, the economist explained.
As a result, Mr Oliver’s view, and that of AMP Capital, “remains that at some point Trump will seek more seriously to resolve the trade issue”.
2. Policy stimulus ramping up
With numerous central banks now cutting interest rates and indicating that more cuts are on the way, Mr Oliver cited examples of the Fed, the ECB, Chinese economic policy meetings, German fiscal stimulus, and talk of US tax cuts to make his point.
He considered this “very different to last year when the Fed was tightening, the ECB ended QE and other central banks, including the RBA, looked to be edging towards tightening”.
3. Australia’s OK while the US and world is OK
“While the risks have increased, a US or global recession remains unlikely,” conceded the economist.
Services indicators have held up well, according to Mr Oliver, with the sector a “dominant part” of most major economies.
We have also not seen “the sort of excesses that precede global and notably US recessions – there has been no investment boom, private sector debt growth has been modest, and inflation is low such that central bankers have not slammed the brakes on”, he outlined.
Monetary and fiscal stimulus will also provide support, Mr Oliver continued.
4. Cheap shares
Mr Oliver has noted a decline in bond yields as making shares relatively cheap.
“The gap of 4.8 per cent between the grossed-up dividend yield on Australian shares of 5.7 per cent and the Australian 10-year bond yield of 0.94 per cent is at a record high,” the economist flagged.
Similarly, the gap between the grossed-up dividend yield and bank term deposit rates of less than 2 per cent is very wide, he continued.
“In other words, relative to bonds and bank deposits, shares are very cheap, which should see them attract investor flows, providing we are right and recession is avoided,” Mr Oliver concluded.
About the author
About the author
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
