Market Commentary – June 2020

by Chris Limberg on Jul 13, 2020

Financial Year Review

The financial year 2020 will be one discussed in textbooks for decades. The year started with heighten risks around trade wars between the US and China, but markets breathed a sigh of relieve and pushed on to an all-time high (7,197) as tensions eased around Global trade. The year finished with the severe Global downturn as countries scrambled to contain the COVID-19 Pandemic. The Australian sharemarket reaction was to tumble 40% in as little as 4 weeks and subsequently surge 33% from the low (4,402), in a very lopsided recovery, to fall 11% to 5,898 for the financial year. The recovery to date has hastened emerging trends with the big winners being Consumer staples, Health and Tech and losers market stalwarts Energy, Banks and Insurance.

Current State of Australia

The Australian economy is experiencing its biggest contraction since the 1930s. In March, an unprecedented 800,000 people lost their jobs with many retaining employment only due to Government support programs, which are due to end in September. In recent weeks conditions have stabilised with some leading indicators showing signs of improvement, suggesting the downturn has been shallower than initially expected. Notwithstanding signs of gradual improvement Australian house holds and business remain cautious delaying spending and investment decisions.

The spike in Coronavirus infections in Melbourne will be the first of what is likely to be many tests of the commitment of both the Australian Government and Reserve Bank of Australia’s commitment to positioning the Australian economy for a return to global growth.

Portfolio Positioning

We remain judicious in our investment outlook building cash where appropriate and trimming back stretched shareholdings. Despite the recent roller coaster ride in the sharemarket activity remains high with many opportunities being assessed over the quarter. Numerous listed companies raised money at heavily discounted prices to bolster bank balances to weather the crisis, Limberg Asset Management have selectively taken advantage of these opportunities where appropriate.

Assessment of current investment prospects are highly contingent on the management of the virus and its outcomes; for example Australian population growth in recent years has been largely driven by immigration. Currently, Australian boarders are closed and migrants unable to enter Australia. The implications of slower population growth are significant on key elements of the Australian economy such as banks, construction and education. That is less people, less buying of house, so less mortgages and need to build these homes. A large portion of Australian education is foreign students who currently cannot enter the country. We have avoided many of these sectors. 

Going forward, we remain cognisant of the evolving Global political dynamic with an US election in November and an increasingly outward looking China both of which are likely to cause volatility in the coming quarters.