VANECK VIEWPOINT TM GLOBAL ECONOMIC PERSPECTIVES - VANECK AUSTRALIA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
VanEck ViewPoint TM Global economic perspectives April 2020
VanEck ViewPoint™ 2
Market review Chart 1: Index returns in the March 2020 quarter
Gold
The last quarter seems like something out of a science fiction movie. A virus pandemic, Australian Fixed Income
Global Fixed Income
an oil crisis, financial market capitulation, toilet paper hoarding and the media’s,
China Equities
particularly social media, ubiquitous coverage and unrelenting focus on the negative. Australian Bank Bills
What is missing in the background to this movie is a score to match, it appears Japanese Equities
US Equities
Mozart’s Requiem in D Minor would be fitting. It’s no wonder many people feel like we
Global Equities
are in the eye of the financial storm where liquidity reigns as king and there is no place Emerging Markets
to hide but cash. The pandemic has led to a credit crunch where corporate earnings and European Equities
UK Equities
cash flow are the centre of the current liquidity predicament. USA Small Caps
Australian Equities
We live in a highly interconnected and globalised world. The COVID-19 pandemic Australian Small Caps
is bringing about an unprecedented economic halt to all productivity. The market 30% 20% 10% 0% 10% 20% 30%
crash deemed a ‘black swan’ event has not been isolated to equities but also to credit Source: Bloomberg, 1 January to 27 March 2020, returns in Australian dollars. International Equities is MSCI World ex Australia Index,
and bond markets. The lack of a reliable asset to hedge is unprecedented. In the Australian Equities is S&P/ASX 200 Accumulation Index, Australian Fixed Income is Bloomberg AusBond Composite 0+ yrs Index,
Global Fixed Income is Bloomberg Global Aggregate Bond Hedged AUD Index, Australian Bank Bills is Bloomberg AusBond Bank
early stages of the pandemic, investors piled into government bonds however yields Bill Index, Emerging Markets is MSCI Emerging Markets Index, Gold is Gold Spot US$/oz, Australian Small Caps is S&P/ASX Small
Ordinaries Index, US Small Caps is Russell 2000 Index, US Equities is S&P 500 Index, UK Equities is FTSE 100 Index, Japanese Equities
climbed erratically and the pursuit to a safe harbour was limited. is Nikkei 225 Index, European Equities is MSCI Europe Index, Chine equities is CSI 300 Index.
For the quarter 27 March 2020, gold bullion (in Australian dollar terms) led the charge
as investors sought protection. Ironically in the place where it all started, Chinese
Chart 2: Global and Australian equity sectors March 2020 quarterly performance
equities have outperformed developed markets and offered absolute positive returns.
10% Australia Global
It was no surprise to see that both in Australia and globally the best performing
sectors were consumer staples and healthcare. 0%
-10%
The current monetary stimulus efforts by central banks – including but not limited to the
-20%
Reserve Bank, ECB, Bank of Japan and the US Federal Reserve – combined with the
fiscal stimulus by most governments is aiming to thwart the impact to businesses and -30%
households. These are unchartered waters as we navigate the eye of the financial and -40%
health storm upon us. We are yet to reach ‘peak pandemic’ and only with time and the -50%
benefit of hindsight will we be able to assess the true devastation of the destruction of -60%
wealth and human loss. Investor’s constitutions are being tested like no other time.
Consumer
Discretionary
Consumer
Staples
Energy
Financials
Health Care
Industrials
Information
Technology
Materials
Real Estate
Tele-
communications
Utilities
“Without courage, all other virtues lose their meaning.” Source: Bloomberg, 1 January to 27 March 2020, returns in Australian dollars. Consumer discretionary is MSCI World Consumer
Discretionary Index / S&P/ASX 200 Consumer Discretionary Index, Financials is MSCI World Financials Index / S&P/ASX 200 Financials
Index, Materials is MSCI World Materials Index / S&P/ASX 200 Materials Index, Healthcare is MSCI World Heath care Index / S&P/ASX
– Winston Churchill 200 Heath care Index, Utilities is MSCI World Utilities Index / S&P/ASX 200 Utilities Index, Property is MSCI World REIT Index / S&P/
ASX 200 AREIT Index, Consumer Staples is MSCI World Consumer Staples Index / S&P/ASX 200 Consumer Staples Index, Information
Technology is MSCI World Information Technology Index / S&P/ASX 200 Information Technology Index, Energy is MSCI World Energy
Index / S&P/ASX 200 Energy Index, Industrials is MSCI World Industrials Index / S&P/ASX 200 Industrials Index, Communications is
MSCI World Telecommunications Index / S&P/ASX 200 Telecommunications Index.Global economic perspectives, March 2020 3
Black Swan time Chart 3: Q4 2019 data was pointing the right direction, led by the US
Global PMIs
US ISM Eurozone EM China
Back in December, markets were on a tear. Global growth, led by the US, was
62 60
heading in the right direction. Good news was taken to heart and fully priced, bad
news was discounted or ignored. Hindsight is a marvelous thing, but hubris often 60
55
precedes payback! 58
56 50
While always cognisant that good times do not last forever, parts of the equity markets
US and Eurozone
EM and China
appeared to be overvalued and corporate balance sheets and corporate debt were 54
45
not in great shape. We’d also expressed concern about global, just-in-time, supply 52
chains in the then trade-war era and its subsequent pause (remember the trade war?). 50 40
It’s the definition of Black Swans that you don’t see them coming. Two have sailed into 48
35
view: COVID-19 and an oil shock. In some ways they offset, in others they amplify. And 46
it’s early days to have clarity on how big or how long-lasting their impact will be. 44 30
Nov 14
Jan 15
Mar 15
May 15
Jul 15
Sep 15
Nov 15
Jan 16
Mar 16
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
Mar 19
May 19
Jul 19
Sep 19
Nov 19
Jan 20
Any action central banks take to stimulate a weakened economy is likely to lack impact
in the short term. There are two aspects that make a coronavirus economy extremely
Source: Bloomberg LP. Data as of February 2020.
difficult to stimulate. First, this is a deflationary shock with declines or stoppages in
work, travel, leisure and other forms of economic activity. Second, it is likely to create
shortages due to the interruption of global supply chains, which would normally be Chart 4: Trade war pause had led to peace dividends everywhere
inflationary. No amount of rate cuts or quantitative easing will have much impact until US-China trade war and GDP growth
people and businesses are able to resume normal activities.
4 Closed Open
At this stage, markets are caught in a risk unwind, which in turn has unleashed a value 3.5
at Risk (VAR) storm and a classic liquidity squeeze. How far and how long markets stay
3
unhinged will depend on the quality and quantity of the policy response and how
Closed economies
quickly the world shakes off COVID-19. 2.5
GDP Growth %
While we remain positive the impact of COVID-19 will be short-lived, talk of a rapid 2
V shaped recovery by mid-year might be too optimistic. There will be repercussions 1.5
throughout 2020.
1
The slump in oil prices will be a supply boost for energy consumers. Though it will be Open economies
0.5
more problematic for high cost energy producing nations.
0
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
Jun 16
Sep 16
Dec 16
Mar 17
Jun 17
Sep 17
Dec 17
Mar 18
Jun 18
Sep 18
Dec 18
Mar 19
Jun 19
Sep 19
Dec 19
Source: VanEck Research, Bloomberg LP.VanEck ViewPoint™ 4
Global policy response Chart 5: Where the liquidity is going to come from?
Major central banks’ balance sheets (% world GDP)
22
Central bankers in developed markets (DM) have landed in their nightmare scenario.
20
They have little to no ammunition left. Cutting rates and pumping cash worked for the
18
GFC because it was principally a financial crisis. All monetary policy can achieve this
16
time is to provide cheap liquidity to calm markets. To date this has not helped. Programs PBoC
14
to help companies, especially SMEs, cope with cash flow problems could be crucial.
12
Fiscal policy should be more potent – although not in the short term. Until the pandemic 10
BoJ
abates, most of what it can do is provide income support for dislocated individuals and 8
companies, rather than bolster fresh spending. It needs to help ensure companies and 6
ECB
individuals are in a position to contribute to recovery when the time comes – insolvent 4
or chronically indebted companies or households cannot. Governments around the 2
Fed
OECD world have, by and large, grasped this. While the first-round responses were 0
Jan 06
Jun 06
Nov 06
Apr 07
Sep 07
Feb 08
Jul 08
Dec 08
May 09
Oct 09
Mar 10
Aug 10
Jan 11
Jun 11
Nov 11
Apr 12
Sep 12
Feb 13
Jul 13
Dec 13
May 14
Oct 14
Mar 15
Aug 15
Jan 16
Jun 16
Nov 16
Apr 17
Sep 17
Feb 18
Jul 18
Dec 18
May 19
Oct 19
out of the GFC playbook (an attempted modest demand boost coupled to market
liquidity measures) the second-round packages have been much larger and aimed at
underpinning incomes and balance sheets. But the problem of magnitude remains. Source: VanEck Research, Bloomberg LP. Data as of 28 February 2020.
No one can say with confidence how big a response is required. With credit markets
already strained (more below) and corporate balance sheets loaded, it’s doubtful the Chart 6: Emerging markets had room to move before COVID-19
liquidity measures proposed will succeed given the likely duration of the crisis. Our Real policy rates in selected EM and DM, %
best guess is the crisis is likely to hit 2020 global growth by 10 per cent – a massive hit,
concentrated in the second quarter which may be down 30 per cent at an annualised rate. 4 DM DM average EM EM average
While some governments have announced packages totalling 10 per cent of GDP in 3
dollar terms, these are, so far, over-announcements adding guarantees and liquidity
facilities to actual dollars (Australia is an example of this). Given the unknowable 2
scale of the hit, chasing valuation levels is a pretty pointless task. Markets will start to 1
heal when the virus is clearly under control; at which point the depth of the growth,
balance sheet and earnings hits will be calculable. 0
There appears to be nowhere to hide. Except perhaps emerging markets (EM). While -1
these are high beta markets and will get hurt by a soaring US dollar in the short term,
-2
they may be better performers in the medium term.
-3
At least EM policy makers have a little more room to move, so like the GFC in which
EM average
Turkey
Philippines
Dom Rep
Brazil
Colombia
Uruguay
India
Indonesia
S Africa
Russia
Mexico
Ukraine
Fed
Australia
ECB
Japan
Chile
Hungary
Poland
Argentina
Czech
Thailand
Peru
China
DM average
UK
China was able to be a part of the stimulus story, we expect some emerging markets
again to be stronger as a result of this crisis.
Source: VanEck Research, Bloomberg LP. Data as of 19 March 2020. Nominal policy rates adjusted for 12-month ahead
inflation expectations.Global economic perspectives, March 2020 5
China Chart 7: China’s flattening curve
China COVID-19 cases and deaths have moderated
Total cases Total deaths
China’s regime has one big advantage in dealing with an epidemic: they can issue 90,000 10,000
absolute orders to citizens and companies to shut down and isolate. 9,000
80,000
They also have a serious disadvantage: information and social control. Coupled with 70,000 8,000
obsessive image protection, this means that vital information to avert problems is slow to 60,000
7,000
arrive. It also means outsiders are likely to be highly sceptical about any “good news”.
Total deaths
6,000
Total cases
50,000
5,000
Thus, China’s response to COVID-19 was both late – and drastic. Widespread 40,000
4,000
economic lockdown means economic output has plummeted, destroying production 30,000
3,000
chains across the globe. 20,000
2,000
As early as the first week of March, 75% of US companies were already experiencing 10,000 1,000
supply chain disruptions, according to a survey by the Institute of Supply Management 0 0
(ISM). Revenue forecasts for the year had already been downgraded by 5.6% on
31 Dec 19
7 Jan 20
14 Jan 20
21 Jan 20
28 Jan 20
4 Feb 20
11 Feb 20
18 Feb 20
25 Feb 20
3 Mar 20
10 Mar 20
17 Mar 20
average. This will be the tip of the iceberg.
As we have mentioned previously, in respect of trade and technology tussles, the Source: China National Health Commission.
high tide of globalisation has passed. The demonstration of how fragile supply chains
are will exacerbate the recoil. Blamestorming over the origins of the pandemic will
exacerbate antipathy between the US and China. Chart 8: China encouraging credit
China credit aggregates, monthly changes (bn CNY)
According to the China National Health Commission new cases of COVID-19 in 2000 24
China have moderated and the sum of confirmed and suspected cases have trended 1800
downwards. Chinese are starting to return to work. The best indicator of a turnaround 22
1600 New loans up
in Chinese output will be other countries’ imports from China. This data will only be
Reserve Requirements, %
1400 20
available with a considerable lag.
New Loans, bn CNY
1200
18
The supply shock is greatest in China, with food prices surging (an earlier swine flu 1000
16
outbreak exacerbated this). But the Chinese authorities face CPI inflation in excess 800
of 5%, with interest rates of 1.5% for one-year deposits. Cutting rates risks stoking 600 14
inflation, as well as eroding the real value of household savings. On the other hand, 400
Reserve 12
already burgeoning fiscal spending will likely have to be directed to supporting 200 requirements
downs
bloated corporate balance sheets. Nonetheless, we expect China will continue to 0 10
throw policy boosts at the economy. They have little choice and they have room.
Nov 11
Apr 12
Sep 12
Feb 13
Jul 13
Dec 13
May 14
Oct 14
Mar 15
Aug 15
Jan 16
Jun 16
Nov 16
Apr 17
Sep 17
Feb 18
Jul 18
Dec 18
May 19
Source: Bloomberg LP.VanEck ViewPoint™ 6
United States Chart 9: The Fed’s recent rate cuts are resulting in tighter financial conditions like in 2007–2008
Fed’s cutting cycles and US financial conditions (Chicago Fed’s adjusted index)
Heading into the turn of the year, the US economy was in a Goldilocks spot: growth was 5
-> tightening
moderate, labour markets were firm and wage growth was picking up. For an economy
near full employment, it was about the best that could be hoped for: not too hot
4
(which would lead to rate hikes); or too cold (sluggish growth sliding into recession).
US Adjusted Financial Conditions Index
Unfortunately, the US is now looking at the downside of both black swans. Like 3
elsewhere, COVID-19 is hurting businesses. And, while lower oil prices will help 1981–1983
household budgets, the US oil sector may suffer. 1974–1975
2007–2008
2
The longest economic expansion and bull market in history has come to an end in 2020. 1980
The Fed cut rates by 50bps as its first step and this was insufficient to prevent financial
1
conditions tightening. As the severity of the outlook deteriorated, with rates dropped to
the lower bound and the difference between QE and non-QE has now evaporated.
1989–1992
accommodativeGlobal economic perspectives, March 2020 7
Europe Chart 11: The ECB was maxed out before
ECB balance sheet and Eurozone GDP growth
Eurozone GDP growth ECB balance sheet
The Eurozone is a weak link in the global economy. Most important, the currency
zone is not optimal – one currency with many fiscal and financial systems underneath 45 3.5
makes no sense, as is acknowledged by European officials. Crisis was supposed to
40 3
provide the excuse for creating an optimal currency zone, but even the GFC and the
Eurozone Real GDP Growth, %
ECB Balance Sheet, % GDP
European crises of 2013 didn’t result in fixing this basic structural problem. Until this 35 2.5
is done, there will always be doubts about longer-term sustainability of the monetary
union and its currency, the euro. 30 2
In the past couple of years, it also became increasingly clear that the Eurozone’s 25 1.5
monetary policy setup is largely exhausted in its current configuration. Even though
the ECB had been actively expanding its balance sheet and lowering its policy rate – 20 1
which drove the shadow policy rate to mind-boggling -7.28%, the regional real GDP
15 0.5
growth no longer responds to the stimulus. The ECB is truly stuck:
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
Jun 16
Sep 16
Dec 16
Mar 17
Jun 17
Sep 17
Dec 17
Mar 18
Jun 18
Sep 18
Dec 18
Mar 19
Jun 19
Sep 19
Dec 19
• if it continues to cut rates further, it might irreparably damage the financial sector;
Source: Bloomberg, February 2020.
• if it tightens, this might push many European corporates over the edge.
These are the reasons that might have prompted the German government to
abandon its decade-long “black zero” principle of balanced budgets and approve Chart 12: Eurozone to ‘restart’ in relatively worse shape
a fiscal stimulus package to minimize the economic damage from the coronavirus. US dollar and relative macro surprises
The package is on the small side, but its significance and symbolism should not US-Eurozone Macro Surprise Differential Broad US Dollar Index
be underestimated both in terms of a near-term cyclical impact and a longer-term 150 100.0
support for growth. 99.5
We can only hope that at some point there will be a wider acceptance of structural 100 99.0
US-Eurozone Macro Surprise Differential
and institutional reforms in the Eurozone and the European Union. There were some 98.5
US dollar Index
positive country-specific examples in the past few years, but more needs to be done. 50 98.0
For now, the region’s structural and institutional rigidity (such as reliance on “national
97.5
champions”) remains a major impediment to lifting its potential output beyond
0 97.0
meager numbers that we see on a regular basis. The problem with being hopeful of
96.5
further structural reforms is the fact that Europeans never supported currency union.
So asking voters to pay a price during crisis, for something they never supported, -50 96.0
strikes us a politically fraught. 95.5
-100 95.0
Sept 19
May 19
Aug 19
Nov 19
Dec 19
Feb 19
Oct 19
Apr 19
Jun 19
Jan 20
Jul 19
Mar 9
Source: Bloomberg LP.VanEck ViewPoint™ 8
Gold Chart 13: Comparing bulls
Current market, 2015 to current
While the sell-off in gold stocks was painful, it is not unusual in the middle of a stock $1,700
market panic. The last such example was during the 2008 financial crisis. Following
$1,600
Lehman’s bankruptcy in September that year, gold declined just 10% before trending $1,700
higher about a month later. Over the same period in 2008, the NYSE Arca Gold miners $1,500
$1,600
Index fell 48%, but by December 16 it had recovered to its pre-Lehman level in a classic dB
ase
$1,400 T ren
V-shaped recovery. Contrast this with the S&P 500 that didn’t reach a bottom until 6 $1,500 rr ent
$/oz
Cu
March 2009 after falling 46%. The S&P 500 didn’t recover its post-Lehman losses until se
$1,300 Ba
re nd
$1,400 tT
January 2011. So, while the general stock market was struggling to recover for over two rre
n
$/oz
Cu
years, the gold stock market quickly rebounded and went on to bull market gains. $1,200
$1,300
ase
rend B
We believe the markets will look back on COVID-19 “black swan” as a buying $1,100 Early T
$1,200
opportunity for gold shares. However, whether the worst is behind us is anyone’s guess. ase
$1,000
rend B
$1,100 Early T
Mar 15
Sep 15
Mar 16
Sep 16
Mar 17
Sep 17
Mar 18
Sep 18
Mar 19
Sept 19 Sept 19
Mar 20
Sept 20 Sept 20
As markets gyrate, gold investors must not lose sight of the bigger picture. For over
a year, falling real rates have primarily driven the gold price. With many markets in $1,000
Mar 15
Sep 15
Mar 16
Sep 16
Mar 17
Sep 17
Mar 18
Sep 18
Mar 19
Mar 20
disarray amid the widening outbreak, gold has not responded to the fall in real rates.
Once the volatility subsides, we expect real rates to continue driving gold prices. Chart 14: Comparing bulls
$2,200
Gold and gold stocks are in the middle of a secular bull market that started in December Current market similar to gold’s last secular rally, 2001 to 2012
$2,000
2015 when gold bottomed out at US$1,050 per ounce. The two gold price charts $2,200
$1,800
highlight the technical similarities between the current bull run and the 2001 – 2011 rally. $2,000
$1,600 Ba
se
nd
The top chart tracks the price trend of the current bull market. It began with a weakly $1,800
$1,400 Tr
e
ate
rising trend for several years, then accelerated to a stronger trend in 2019. Likewise, in tim se
$/oz
$1,600
$1,200 We might be here Ul Ba
nd ase
the bottom chart an early trend of weakly rising prices broke into a stronger trend in r t Trend B
Trr
e
$1,400
$1,000 t
C e u en
a
2005. In the earlier market (bottom chart), the ultimate trend followed the financial crisis tim
$/oz
$1,200
$800 We might be here Ul
se
in 2008. The red circle shows roughly where the current market might be in the larger nd Ba
nt Tre
$1,000
$600 Early Trend Base Curre
scheme of things, using the 2001 – 2011 market as an analogy. $800
$400
Fundamentally, each of these markets had different drivers, with the early 2000s $600
$200 Early Trend Base
Feb 11 Feb 11
Feb 01 Feb 01
Feb 02 Feb 02
Feb 03 Feb 03
Feb 04 Feb 04
Feb 05 Feb 05
Feb 06 Feb 06
Feb 07 Feb 07
Feb 08 Feb 08
Feb 10 Feb 10
Feb 09 Feb 09
Feb 12 Feb 12
$400
market driven by the fallout from the tech bust and US dollar weakness. The early
$200
years of the current market were driven by geopolitical risks and Fed activity.
Regardless of specific drivers, both markets rose with increasing risks to the global
financial system where gold was bought as a safe store of wealth.
Source: Bloomberg, VanEck. Data as of 28 February, 2020. Past performance is not a reliable indicator of future performance.
Chart is for illustrative purposes only.Global economic perspectives, March 2020 9
Emerging markets bonds
Chart 15: Emerging markets have less debt than developed markets
Radar chart comparing develop markets and emerging markets
PC/GDP
Some emerging markets look set to acquit themselves during the COVID-19 crisis, 2
L/D GGD/GDP
as they did during the GFC. And, for the same basic reasons – strong fiscal balance Solvency
sheets, and central banks focused on maintaining high real interest rates. Emerging CE/A
1
TXD/GDP
Liquidity
market economies generally have much lower debt stocks, whether private or public. Structural
0
For example, the biggest emerging market economies have private credit (as a Average
percent of GDP) in line with the global mean, whereas the G-10 developed markets EDB RES/IMP G10
-1
have private credit almost 2 standard deviations higher than the global average. We EM-26
start with the example of private credit because these are the markets that remain -2
unresolved by policymakers at this moment (more on that below). GDP/CAP RES/M2
Secondly, emerging markets central banks are very orthodox, and maintain high real
interest rates, especially in comparison to those of the developed markets. Earlier in this FDI/GDP M2/GDP
ViewPoint, Chart 6 highlighted some of these real policy rates in emerging markets and
developed markets coming into the crisis. Average emerging markets real policy rate
CAB/GDP XDS/CAX
is 0.84% whereas the average real policy rate in developed markets is -1.17%.
FB/GDP REV/GDP
Of course, emerging market debt exists in the context of global markets and
economies in disarray, so a necessary element of the rebound we expect in emerging Source: VanEck, Bloomberg as at end of February.
markets is some end to the current crisis. We see this forthcoming in the coming
weeks/months due to the incredible monetary and fiscal stimulus developed markets
and emerging markets economies are enacting. We expect the US authorities, in Chart 16: Emerging market’s lower debt
particular, to enact forms of CE (credit easing) to address the still-unresolved issue of Domestic credit/GDP Ratio (%)
non-functioning credit markets. We also expect the Fed to extend its US dollar swaps 200
187.2
with key emerging markets central banks, providing dollar liquidity and preventing 180
vicious cycles resulting from US dollar demand. Finally, we’d note that the collapse 160
in oil prices has been conflated with a demand shock in emerging markets, but it is 140 134.7
really a supply shock. Lower oil prices benefit emerging markets, most of which are oil 120
importers and have consumption baskets with a large energy component, meaning 100
86.9 85.9
that real interest rates are higher and give policymakers that much more room to ease. 80
63.2
60 57
45.5
40
20
0
Eurozone UK US EM Aaa-A3 EM Baa1-Baa3 EM Ba1-Ba3 EM B1-C
Source: VanEck, Bloomberg as at end of February.VanEck ViewPoint™ 10
Australia’s luck runs out Chart: 17: RBA action in 2019 had only increased house prices
CoreLogic Home Property Value Index rebased to 100 1/1/2019
Australia has been skating on thin ice for a while now: private domestic demand has Melbourne All Dwellings Index Sydney All Dwellings Index Adelaide All Dwellings Index
Brisbane All Dwellings Index Perth All Dwellings Index RBA cash target rate
been close to zero, with government spending and exports keeping the economy’s
115
head above water. 2.5
110
Lacklustre wages growth has led to weak consumer spending, in turn suppressing
2
non-mining investment. After earlier surges, mining investment and housing 105
Dwellings Index Values
investment (notably apartments) have been unwinding. Were it to continue, the
100 1.5
house price pick-up would see housing construction start to rebound.
RBA (%)
95
Employment growth has been a highlight – although led by lower paid sectors, such 1
as (government funded) healthcare and services – which also have lower measured 90
productivity. 0.5
85
The RBA spent much of 2019 begging the Government to be proactive. The RBA
was aware of how little useful ammunition it had left in its barrel. Indeed, last years’ 80 0
Jan 17
Feb 17
Jul 17
Sep 17
Nov 17
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Feb 19
May 19
Jul 19
Sep 19
Nov 19
interest rate cuts had reflated the capital city house price bubble; while undermining
May 17
Mar 19
Mar 20
Feb 18
Jan 20
broader confidence and interest incomes.
Like other central banks, the RBA felt fiscal policy was a more potent weapon. With Source: CoreLogic, RBA, to 24 March 2020.
real interest rates so low; and (in Australia’s case) government debt at very low levels,
there seemed no reason not to put long term productive investments in place. Chart 18: Miner, education and tourism were major exports
Australia’s top export mix
Unfortunately, time ran out. Australia’s luck has turned. Last year, mining problems in
Brazil boosted Australian exports and national income. This year, bushfires, COVID-19 40,000
Metal ores Coke and Coal LNG, Oil etc Education Other tourism
and the oil shock will do the opposite.
35,000
Education and tourism are two of Australia’s biggest exports. Both have been 30,000
adversely impacted by bushfires and COVID-19 .
25,000
$ billion
As shutdowns spread and employment and business survival gets hit, estimates 20,000
of the possible short term cost to GDP are soaring, with 10% declines possible.
15,000
Obviously the longer the virus outbreak continues, the greater will be the damage.
10,000
5,000
0
Mar 10
Aug 10
Jan 11
Jun 11
Nov 11
Apr 12
Sep 12
Feb 13
Jul 13
Dec 13
May 14
Oct 14
Mar 15
Aug 15
Jan 16
Jun 16
Nov 16
Apr 17
Sep 17
Feb 18
Jul 18
Dec 18
May 19
Oct 19
Source: ABS.Global economic perspectives, March 2020 11
Fiscal response Chart 19: Spreads in corporate bonds have continued to widen despite RBA easing
Australian iTraxx past ten years
The Federal Government has given up on its budget surplus obsession and has now 300
made multiple fiscal responses. The first, weighed in at a bit over 1 per cent of GDP
over the forward estimates, with more than half expected in the remainder of this 250
fiscal year. The second looks more like 4-5 per cent – although it has been advertised
as 10 per cent. Around half consists of lending, guarantees and RBA liquidity. The 200
Credit Spreads (bps)
third is the $130bn JobKeeper and JobSeeker programs.
150
In the GFC, Treasury’s memorable advice was “go early, go hard, go households.”
It worked to prop up demand sufficiently that Australia escaped a recession (alone 100
among G20 economies). Ten years of demonising that response has left the Coalition
Government in a tricky political position. Nonetheless, they swallowed their pride to 50
include a one-off cash splash for pensioners and welfare recipients. The money will
be quickly spent. 0
July 09
July 10
July 11
July 12
July 15
July 13
July 14
July 16
July 17
July 18
July 19
The economic response to the packages is a bit harder to read. Investment incentives
are unlikely to be utilised in the near term because uncertainty and falling consumer
Source: Bloomberg to 23 February 2020.
demand will dominate investment business cases until the outlook clears.
Cash boosts to heavily affected regions and industries are more about preserving
Chart 20: Asking for more
businesses from collapse rather than promoting growth. The jury is out on how
Government spending to skyrocket
successful this will be. But it certainly can’t hurt; and while chunks of the economy are
virtually in lockdown there’s little other help available. Govt spending Private domestic demand GDP
6
Likewise, wage subsidies for apprentices and PAYG relief are both wait-and-see. With 5
the labour market still fairly slack (and likely to deteriorate), business may still let
workers go and concentrate instead on shoring up the bottom line and balance sheets. 4
Though the JobKeeper and JobSeeker package which targets this very problem will go 3
a long way to prevent that. %
2
Oil price declines will be a positive for real household incomes, though less positive for
1
natural gas and coal markets. Australia is now in a recession. If COVID-19 is brought
under control quickly and companies and jobs make it through without too much 0
damage it may be shallow. Any serious damage to corporate solvency or employment
-1
will see a deeper and longer downturn, accompanied by a housing downturn and loan
Mar 05
Nov 05
Jul 06
Mar 07
Nov 07
Jul 08
Mar 09
Nov 09
Jul 10
Mar 11
Nov 11
Jul 12
Mar 13
Nov 13
Jul 14
Mar 15
Nov 15
Jul 16
Mar 17
Nov 17
Jul 18
Mar 19
Nov 19
performance problems. The Government will do all it can to avoid this scenario.
Source: ABS, RBA.VanEck ViewPoint™ 12
Range of VanEck Vectors Exchange Traded Funds on ASX
Name ASX code Index Management costs (% p.a.)
Australian Broad Based
Australian Equal Weight ETF MVW MVIS Australia Equal Weight Index 0.35%
Australian Sector
Australian Banks ETF MVB MVIS Australia Banks Index 0.28%
Australian Property ETF MVA MVIS Australia A-REITs Index 0.35%
Australian Resources ETF MVR MVIS Australia Resources Index 0.35%
Australian Small and Mid Companies
Small Companies Masters ETF MVS MVIS Small-Cap Dividend Payers Index 0.49%
S&P/ASX MidCap ETF MVE S&P/ASX MidCap 50 Index 0.45%
Sustainable Investing
MSCI International Sustainable Equity ETF ESGI MSCI World ex Australia ex Fossil Fuel Select SRI and Low Carbon Capped Index 0.55%
MSCI Australian Sustainable Equity ETF GRNV MSCI Australia IMI Select SRI Screened Index 0.35%
International
ChinaAMC CSI 300 ETF CETF CSI 300 Index 0.60%
China New Economy ETF CNEW CSI MarketGrader China New Economy Index 0.95%
MSCI Multifactor Emerging Markets Equity ETF EMKT MSCI Emerging Markets Diversified Multiple-Factor Index (AUD) 0.69%
Morningstar Wide Moat ETF MOAT Morningstar Wide Moat Focus Index™ 0.49%
MSCI World ex Australia Quality ETF QUAL MSCI World ex Australia Quality Index 0.40%
MSCI World ex Australia Quality (Hedged) ETF QHAL MSCI World ex Australia Quality 100% Hedged to AUD Index 0.43%
Global Sector
FTSE Global Infrastructure (Hedged) ETF IFRA FTSE Developed Core Infrastructure 50/50 Hedged into AUD Index 0.52%
FTSE International Property (Hedged) ETF REIT FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged 0.43%
Gold Miners ETF GDX NYSE Arca Gold Miners Index 0.53%
Australian Fixed Income
Australian Corporate Bond Plus ETF PLUS Markit iBoxx AUD Corporates Yield Plus Index 0.32%
Australian Floating Rate ETF FLOT Bloomberg AusBond Credit FRN 0+Yr Index 0.22%
Australian Subordinated Debt ETF SUBD iBoxx AUD Investment Grade Subordinated Debt Index 0.29%
Global Income Performance Benchmark
VanEck Emerging Income Opportunities Active ETF 50% J.P. Morgan Emerging Market Bond Index Global Diversified Hedged AUD and 0.95%
EBND
(Managed Fund) 50% J.P. Morgan Government Bond-Emerging Market Index Global DiversifiedContact us vaneck.com.au VanEck-Australia info@vaneck.com.au VanEck_Au +61 2 8038 3300 VanEckAus Important notice Issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’). This is general information only about financial markets and not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision, you should read the relevant PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. PDSs are available at www.vaneck.com.au or by calling 1300 68 38 37. No member of VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return of any VanEck funds. Past performance is not a reliable indicator of future performance. VanEck is the responsible entity and issuer of units in the VanEck Vectors ETFs traded on ASX. All investments carry some level of risk. Investing in international markets has specific risks that are in addition to the typical risks associated with investing in the Australian market. These include currency/foreign exchange fluctuations, ASX trading time differences and changes in foreign regulatory and tax regulations.
You can also read
