Investor optimism fades as risks rise

Blog
Friday 11th December 2020

Investor optimism fades as risks rise

Blog
Friday 11th December 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets finished a little weaker this week as economic data underwhelmed whilst risks overwhelmed including rising virus cases, US fiscal stimulus stalemate, and EU-Britain trade quagmire.
  • In local stock news, Premier Investments chairman Solomon Lew hit back at shareholders who voted against executive pay and served a “first strike” on the board. More than 48% of shareholders voted against, at the same time management delivered record results. Lew chose not to vote on the pay deal, and considering his large holding, the strike would not have recorded if he had.
  • Westpac bank has announced the sale of its Pacific businesses as it continues to simplify its operations. The sale of Westpac Fiji and its stake in Westpac PNG will result in sale proceeds of up to $420 million. The sale comes a week after the bank sold its general insurance business to Allianz for $750 million.
  • Bank of Queensland reported at its AGM that customers who deferred loan repayments due to the virus have largely resumed paying back loans, with 3% ($889 million) of the housing loan portfolio having payments deferred as of November 30. There were also 3% ($390 million) with deferrals in small to medium business loans.
  • OPEC+, the oil producing cartel of countries plus Russia, agreed to gently ease output cuts next year. The deal appeared to satisfy the oil market and most of the cartel’s members, but a split emerged between the Saudis and the UAE which could put future agreements and compliance at risk.
  • The Aussie dollar pushed higher this week, supported by better economic data and surging iron ore demand, whilst the US dollar remained weak not helped by a poorer than expected jobs number.

Economics:

  • The value of Australian retail trade rose by 1.4% in October and is now up 7.1% over the year to October 2020. Clothing and eating out categories led the lift, whilst the strongest trade was seen in Victoria. Household goods and food are still up strongly over the year. It will be interesting to see how retail holds up as we transition into the next lower phase of Keeper and Seeker on 1 January.
  • NSW and Victoria have lost their much-coveted AAA credit rating to AA+ from credit rating agency S&P. S&P said the coronavirus pandemic will strip billions in forecast revenue from the two states’ budgets. S&P also stated that these rating downgrades did not impact Australia’s rating.
  • The ANZ-Roy Morgan consumer confidence index rose strongly in the past week, hitting its highest level for 2020. NAB’s business survey showed confidence rising for a 4th straight month in November, whilst business conditions stand at above average levels.
  • Home prices rose 0.8% for the September quarter according to the Australian Bureau of Statistics. All capital cities had higher prices except for Melbourne.
  • The US Labor Department’s closely watched jobs report showed nonfarm payrolls increased by 245,000 in November, but came in well below economist expectations of 469,000, and is the smallest gain since the jobs recovery started in May.
  • The European Central Bank said it expects Eurozone economic growth to expand by 3.9% next year, slower than its forecast just a quarter ago for 5% growth in 2021. But they did increase their forecast for growth in 2022 to 4.2%.
  • Data showed that German industrial orders rose more than expected in the month of October, raising hopes the manufacturing sector in Europe’s biggest economy started the 4th quarter strongly.

Politics:

  • European Union leaders are preparing to get around the threat posed by Poland and Hungary’s veto of a large stimulus package. A new plan would cut Hungary and Poland out of the $1.2 trillion coronavirus rescue fund, thus stripping them of the power to stop the flow of much-needed stimulus to the zone. It’s likely to be a last resort, but time is running out.
  • Much needed US fiscal stimulus remains at crossroads with both sides of politics failing to agree to a fresh round of measures. It appears that there’s now less disagreement about the quantum but continued disagreement regarding the provisions in the package.
  • US President Trump has put financial sanctions and a travel ban on 14 Chinese officials over their alleged role in the Beijing’s disqualification of elected opposition legislators in Hong Kong. The move targeted officials in the top decision-making body of the Chinese legislature.
  • A US government official has said that all Americans who want one will be able to get a vaccine by the 2nd quarter of next year. The news comes as authorities in California compelled much of its residents to close shop and stay at home after new cases surged. Britain started its roll out of the vaccine during the week.
  • The US Federal Trade Commission filed an antitrust lawsuit against Facebook accusing it of abusing its monopoly powers in social networking to stifle competition. If successful, it might result in the forced divestiture of WhatsApp and Instagram. It will be interesting to see as any forced action would disadvantage Facebook versus equivalent Chinese companies.
  • The US state of Texas has filed a lawsuit that will attempt to overturn the election results in 4 other states where most of the election fraud claims have been made. Trump’s campaign has asked to join the lawsuit whilst 17 other states have joined the suit. Not sure anything will come of it but interesting, nonetheless.

Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972


Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a factual nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns.