While there are plenty of bearish commentaries and warnings about the significant effects of this pandemic being ahead of us,share prices are telling us there is a good degree of optimism about how this ends. But for what it is worth the high profile commentators over the age of 60(Buffett, Gates, Zell, Howard Marks) are all still quite cautious at a time when:
- the S&P500 and the NASDAQ are both now up over the last twelve months;
- the Australian market is only -10% lower than a year ago;
- the Australian market is at same level it was in Dec 2018, when the only real problem confronting the market was slightly higher interest rates.
Things are actually different now. We face the very real prospect that unemployment stays high as Australian businesses do not have the confidence to keep all their full time employees once JobKeeper ends. Surely businesses, badly scarred by recent events, will hold back to some degree on almost all categories of their expenses and capital requirements in the coming six to twelve months having managed to get through this period. There is also around $150bn of mortgages on repayment deferrals as well as around $48bn of business loans.
See attached for the full report.
Emma McCarthy recently joined Ethical Partners. Emma is a passionate final year law student and joins us as Sustainability and Advocacy Assistant. We are honoured to share with you her reflections on the recent UN Global Compact conference, and how it inspired her, as a new recruit to the global sustainability and human rights community, on her journey to fight for change.
During August 2020 the Fund returned 4.10% versus the S&P/ASX 300 Accumulation Index of 3.05%, outperforming by 1.05% (after fees). Overweight positions in Consumer Staples and Industrials added to performance while stocks in General Insurance and Building Products detracted from performance.
It appears that the Australian economy will be asked to grow itself out of debt post COVID rather than experience an increase in taxes once the economy is more stable. So what are the long term projects that would change Australia for the better? It was quite timely indeed then that the Australian Energy Market Operator (AEMO) recently released its 2020 Integrated System Plan (ISP). It appears to us that AEMO has put down the framework for how Australia will operate with less coal fired electricity generation given we have an aging fleet which will be gradually de-commissioned over the next 20 years.The AEMO Plan is a whole of system blueprint for the evolution and change the electricity market will experience in the 20 years to 2040. It expects 63% of the current coal fired power stations to close by then based on company disclosures and end of life assumptions. Herein lies Australia's great stimulus opportunity.
The last quarter has been the best of times for unprofitable but growing companies and the worst of times for value managers and others trying to buy equities with any margin of safety. Speculative activity in markets has been driven by excess central bank liquidity and real yields moving to -100bps, pushing risk assets higher, the valuations of technology companies up to levels not seen before and gold to all-time highs at around $2,000 USD per ounce.