Jacqueline Barton

Spring 2021

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It’s September and spring is here, providing a welcome lift in spirits. After some spectacular performances by our athletes at the recent Tokyo Olympics and Paralympics, hopefully you are inspired to achieve some personal goals of your own.

August provided mixed economic news, with central banks, business and consumers remaining cautious. In a widely-reported speech, US Federal Reserve chair, Jerome Powell said there remained “much ground to cover” before he would consider lifting interest rates, sending stocks higher and bond yields lower.

In Australia, shares and shareholders were boosted by a positive company reporting season. According to CommSec, of the ASX200 companies that have reported so far, 84% reported a profit in the year to June, 73% lifted profits and dividends were up 70% to $34 billion. One of the COVID “winners” is the construction sector. While the value of construction rose 0.4% overall in the year to June, the value of residential building was up 8.9% and renovations rose 24.5%, the strongest in 21 years. One of the COVID “losers”, retail trade was down 3.1% in the year to June.

While unemployment fell from 4.9% to 4.6% in July, full-time jobs and hours worked were lower due to the impact of lockdowns. The Westpac-Melbourne Institute index of consumer sentiment fell 4.4% in August while the NAB business confidence index fell 18.5 points in July, the second biggest monthly decline since the GFC. Wages grew 1.7% in the year to June, well below the 3% the Reserve Bank wants before it considers lifting interest rates.

Iron ore prices fell 18% in August, while the Aussie dollar finished the month weaker at US73.2c.

Doctors worried about COVID-19 in children

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Where previously it seemed that children were mostly immune from contracting COVID, we are now seeing schools being closed. This is concerning to us all, and the following article published by Liv Casben from the Australian Associated Press outlines that doctors are concerned about the lack of vaccines available to children under the age of 12.

Doctors have raised concerns about the lack of a vaccine available for young people.

The comments come as a 15-year-old who had tested positive to COVID-19 died in a Sydney hospital. He was the youngest person in Australia to die with the virus.

Osama Suduh died after contracting pneumococcal meningitis and while he also had COVID-19, it was not the reason for his admission to the hospital or cause of death.

He was too young to receive a COVID-19 vaccination.

The Australian Medical Association’s Danielle McMullen said the teenager’s death highlighted concerns around the transmission of COVID-19 among young people.

“We’ve been concerned throughout this Delta outbreak by the increased rates of COVID-19 in children and young people,” Dr McMullen told AAP. “Given we don’t have a vaccine for children under 12, our only way to keep them safe is to stay home and get these numbers turned around. In children usually COVID-19 is a mild illness, but we can see some children get really unwell or suffer longer term consequences of their COVID illness.”

Western NSW Local Health District chief executive Scott McLachlan said many of the new cases in Dubbo were children.

We’ve got nearly 40 per cent of the cases are kids between 10 and 19, so this is a really serious warning for parents and kids running around,” Mr McLachlan said on Monday.

There have been 2400 cases of COVID-19 in people aged under 20 in NSW since July 1, with 1488 in the past fortnight.

Mr McLachlan urged children from 12 and above to get immunised against COVID-19.

We are very keen to see kids … get vaccinated, particularly Aboriginal kids above 12 years old in Dubbo and the surrounds, vaccines of Pfizer is available,” he said.

Dr McMullen says the situation in Dubbo, where there are currently 91 active COVID cases, is particularly worrying.

The situation in Dubbo remains a real concern, not least with the number of staff being stood down to isolate … our regional workforce just doesn’t have the capacity for the extra workload that COVID presents, like we do in the bigger centres,” she told AAP.

Dr McMullen said she had received reports from GPs all over the state concerned by the COVID-19 situation, and that the hospital system in NSW was under strain.

On Monday, NSW recorded its highest case numbers this outbreak with 478 new cases and eight deaths.

A total of 391 people are being treated in NSW hospitals, with 66 in intensive care and 28 on ventilators.

We’ve got major Sydney hospitals that have had to convert significant parts of the hospital into COVID care. We have plenty of ventilators, and lots of ICU beds, but the real stress point at the moment is staffing,” said Dr McMullen.

She also urged people experiencing symptoms to seek medical help.

The last thing we want is people staying home with chest pain or other serious symptoms for fear of overloading the hospital system.”

The AMA estimates around 70 to 80 per cent of hospital doctors have been vaccinated for COVID-19 so far.

Economic growth shows signs of slowing

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Colin Brinsen, AAP Economic and Business Correspondent from the Australian Associated Press, outlines that there are already signs that the Australian economy will slow down as a result of lockdowns caused by the highly infectious Delta variant. As a consequence, the minutes of the Reserve Bank’s August 3rd board meeting indicated that the board will be prepared to take action if there is further bad news on the health front. We wanted to share that on a positive note, Westpac’s chief economist, Bill Evans expects that growth will resume at a solid-trend pace once our economy emerges from current lockdowns.

There are already signs the Australian economy will be slowing as a result of over half the population being in lockdown while trying to tackle the highly infectious Delta variant.

However, at this stage the Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, is still predicting annual growth above 2.8 per cent – the long-term trend.

The index continued to point to a slowing economy in July, but Westpac chief economist Bill Evans expects the sudden impact of virus lockdowns will become more apparent in August.

Like many economists, Mr Evans is expecting the economy to contract in the September quarter.

With the deteriorating outlook in NSW and Melbourne, Westpac has revised down its forecasts for the September quarter to a contraction of 2.6 per cent.” Mr Evans said. “We are expecting growth to resume at a solid above-trend pace once the economy emerges from current lockdowns but are mindful of the uncertainties associated with the current health situation.”

In the minutes of the Reserve Bank’s August 3 board meeting released on Tuesday, they presented a similar view.

However, the minutes reiterated the board would be prepared to take action if there was further bad news on the health front, should that lead to a more significant setback for the economic recovery.

The board also repeated it will not raise the cash rate from its record low of 0.10 per cent until inflation is sustainably between two and three per cent.

For that to happen it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently – conditions it does not expect to be met before 2024.

It forecasts wages growth – as measured by the wage price index – to increase gradually to around 2.75 per cent by the end of 2023.

The wage price index for the June quarter this year is released on Wednesday by the Australian Bureau of Statistics, and will confirm why an interest rate hike is still years away.

Economists’ forecasts centre on a 0.6 per cent rise in the June quarter.

This will lift the annual rate to 1.9 per cent from 1.5 per cent as of the March quarter and the record low 1.4 per cent set during the second half of 2020 caused by the fallout from the recession.

Wages growth has not been above three per cent since early 2013.

Economic Update Video – August 2021

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Stay up to date with what’s happened in Australian and global markets over the past month.

Our August update video takes you through key economic indicators so you can understand how the Australian economy is faring as we recover from the COVID-19 induced recession of 2020.

Please get in touch if you’d like assistance with your personal financial situation.

Investing lessons from the pandemic

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When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.i Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation.

With the benefit of hindsight, some people may be regretting acting in haste. Although for others, accessing their super under the early release due to COVID measures was a difficult but necessary decision at the time.

As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28 per cent in the year to June 2021 while global shares rose 37 per cent. Balanced growth super funds returned 18 per cent for the year, their best performance in 24 years.ii

While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months?

Lesson #1 Ignore the noise

When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes.

Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations.

One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth.

Lesson #2 Stay diversified

Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings.

Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%.

The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax.

More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees. High growth funds returned 10.3 per cent per year and the most conservative funds returned 5.5 per cent per year.ii

The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income.

Lesson #3 Stay the course

The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so.

Unfortunately, we can only ever be sure when a market has peaked or troughed after the event, by which time it’s usually too late. By switching out of shares and into cash after the market crashed in March last year, investors would have turned short-term paper losses into a real loss with the potential to put a big dent in their long-term savings.

Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed.

Timing the market on the way in and the way out is extremely difficult, if not impossible.

Looking ahead

Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and many older ones too, the coronavirus pandemic will be a defining moment in their investing journey.

Now that shares and residential property prices have rebounded strongly, investors face new challenges. That is, how to make the most of the prevailing market conditions while ignoring the FOMO (fear of missing out) crowd.

By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way.

We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy.

i https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=241a03a46cfc

ii https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain