Investor update: 1 June 2020

Rallies, recoveries and our tolerance to risk.

We’re not out of the woods but are we becoming more tolerant?

While parts of the world exit their slumberous shutdown amid caution of a potential second wave, The World Health Organisation warns that we haven’t seen the last of the first wave yet. Parts of South America and South Asia remain in the middle of their outbreak with concerns the virus is still on the ‘up.’¹

Despite this announcement, mid last week the U.S. and Australian dollar surged with consumer spending on the rise. In fact, credit and debit card data from Commonwealth Bank and ANZ revealed consumer spending has recovered to the extent that it is now above where it was this time last year.² This confidence is believed to be linked to the slow and steady easing of restrictions, potentially signalling an imminent release of pent up demand.

In other news last week, we saw a stunning rally in bank shares with $31 billion added to the combined value of the big four.³ So what does this signal? This rally speaks to some broader themes driving the Australian market. Recently, banks have been holding us back due to their stake in the ASX 200. This is the first game of catch-up being played by Australian shares and signals the debt cycle may not be as bad as first feared. Although medium-term challenges for the sector still remain, we are seeing a renewed sense of optimism among ASX investors.

Does this point to a rising tolerance to risks surrounding the pandemic?

A U.S. Conference Board report last week revealed US consumer confidence edged higher this month after collapsing in April as consumers “were moderately more optimistic about the short-term outlook.”⁴ The majority of participants expect business conditions will improve over the next six months. Big player Apple last week announced it will reopen 100 of its US stores - a potential reflection of companies’ rising tolerance to risk.

Recovery looks high-tech and green

The PM moves firmly into a recovery footing with plans for a new union accord and industrial relations reform under the JobMaker banner. The technology roadmap released last week by the energy minister could also signal an intention to move past the ‘energy wars’ of the last decade.⁵ New figures reveal that renewable energy now accounts for more than 20 per cent of the nation's power, passing a new record.⁶

Australia is looking to growth in high-tech manufacturing industries as part of its strategy for recovery. A similar approach to other developed economies hoping to stoke their own recovery.⁷

Investment and innovation in healthcare continues

As outlined in last week’s update, it’s promising to see that companies are rising to the coronavirus challenge – particularly stocks within our portfolio. In addition to those in the race to find a vaccine or providing critical medicines to COVID-19 patients, U Ethical stocks ResMed and Ramsay Healthcare have also been helping safeguard people.

Medical device and software company, ResMed, has been ramping up production of ventilators. The work ResMed is doing is particularly critical at this time as South America, Brazil, Mexico and Sub-Saharan Africa’s cases are still on the up. ResMed is ‘keeping the foot on [their] accelerator’ by ramping up production three-fold in the third quarter.⁸

Australia’s largest private hospital group, Ramsay Healthcare, is also contributing by providing increased hospital capacity across the nation. It has done so by entering into binding heads of agreement with the NSW Ministry of Health to make its facilities and services available during the COVID-19 pandemic. It reached similar agreements with Victoria in late April and Queensland in early May and is still in talks with WA.⁹

The agreement with the Government comes off-the-back of the partial reopening of elective surgeries. NSW Health may continue to purchase health services directly if needed, but Ramsay will only be obliged to provide those services if it has the capacity to do so and it proves commercially viable.

As restrictions continue to ease, we hope you take some time to enjoy yourself in the company of friends or family this week and stay safe.

Want more Good Returns?

Subscribe to receive the latest ethical investment news.