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
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more
Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more
Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more
Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more
Stock market
Facebook debuts new name
Zuck gets meta. ...Read more
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more
Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more
Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more
Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more
Stock market
Facebook debuts new name
Zuck gets meta. ...Read more
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
