Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Building wealth in a recession
Australians need to rethink their approach to their investment portfolios as they face the grim reality of a slowdown in the growth of the economy. But opportunities lie ahead.
Last week the Australian Bureau of Statistics (ABS) revealed that Australian Gross Domestic Product (GDP) fell 0.3 per cent in the March quarter of 2020, and growth slowed to 1.4 per cent through the year.
Bruce Hockman, chief economist for the ABS, says: “This was the slowest through-the-year growth since September 2009, when Australia was in the midst of the Global Financial Crisis, and captures just the beginning of the expected economic effects of COVID-19.”
Investors should consider capitalising on the opportunities made available from the pandemic, such as the shift to working from home, increased online shopping and digital leisure.
Jessica Amir, market analyst at Bell Direct, says markets are forward-looking and are already focused on the recovery in Q3 and Q4, but GDP will likely fall further.
“The brunt of the COVID-19 economic impact is expected next quarter, with unemployment tipped to soar and GDP to fall 5.7 per cent (which will tip Australia into its first recession in 29 years).
“After that, a quick recovery of 0.2 per cent in Q3, and 2.2 per cent growth in Q4, is expected, thanks to the Government’s three job programs, the RBA’s policies and Aussie iron ore revenue ripping higher.”
However, comparatively, Australia’s performance in the March quarter is much more positive than the negative growth in China at 9.8 per cent; France, 5.3 per cent; Germany, 2.2 per cent; United Kingdom, 2.0 per cent; and the United States, 1.3 per cent.
But having an exposure to the technology sector may be the way to ride through the recession as it is the only sector this year up over 5 per cent, and it is expected to continue to rise.
Investors could consider how to take advantage of these trends, which are likely to gain momentum.
Amir says gambling spending has risen by 63 per cent this year, while internet and web broadcasting spending have surged 42 per cent, with people subscribing to streaming services or updating their computer software.
“Some stocks within this area to consider are: Aristocrat Leisure, PointsBet, Jumbo Interactive, Nine Entertainment or the BetaShares Asia Technology Tigers ETF,” she says.
Online shopping globally is expected to reach US$6.5 trillion by 2023, with an expected 2.1 billion people shopping online by 2021.
Amir says stocks to consider are Afterpay, City Chic, Zip Co, Harvey Norman or the ETF Securities FANG+ ETF.
In addition, the rise of working from home deserves attention in a portfolio. Morgan Stanley wants to cut its office use by 25 per cent, given half of its staff are working from home until the end of 2020, while Twitter is now allowing all of its employees to permanently work from home.
“You’d expect many other businesses will follow given the millions of dollars in cost savings. Real estate office exposed stocks are likely to continue to drag, along with infrastructure-related stocks like airports and tolls road operators,” says Amir.
“Consider investing in companies like cloud computing (data centres) business NEXT DC,” she adds.
Despite the move to work from home, Mirvac argues that office space still has its place in the medium to long term, with tenants potentially requiring an additional 12 per cent office space to satisfy COVID-19 distancing requirements.
According to Amir, Dexus says 25 per cent of its tenants planned a return by the end of May, almost 43 per cent were expected back by June, 50 per cent by July and above 70 per cent by August.
“In the short-term, office REITs will continue to drag the broader property sector lower, but we have already seen a recovery in some other property stocks.
“For example, Unibail-Rodamco Westfield (URW) – the shopping mall giant – has reopened most of its centres in France which accounts for 30 per cent of revenue, and also re-opening British and Spanish malls this week,” Amir says.
