Investor update: 18 May 2020

A loosening of restrictions and a tightening of belts?

Potential shake-ups for JobKeeper, super and banks

Less than a week after the 750,000 businesses enrolled into JobKeeper began to see inflows, the Treasury alluded to a potential wind down of subsidies, including a re-targeting of specific industries. While curtailing the scheme is not out of the question, the PM flagged that future decisions would be based on ‘the advice we have and our reading of the economy.’¹

Since the release of the government’s $30 billion early access to superannuation program, close to 100,000 accounts have been emptied. Consequently, super funds may soon raise fees to offset the losses.²

Looking to banks, since the RBA’s move to record low cash rates in March, banks have been prompted to make substantial cuts across a range of term deposits. Some experts claim this is a by-product of using ‘unconventional’ policies to support bank funding in response to the pandemic. That is, pumping cheap funds into the banking system at a time when credit growth is soft.³

Australia’s biggest home lender, The Commonwealth Bank, last week announced its plan to set aside cash to cover expected COVID-19-related losses. Concerns Australia could experience a 30 per cent house price crash in a worst-case prolonged economic downturn has led to this move.⁴

The calm before the storm?

Is a trade war looming with China? The PM’s calls for an investigation into the causes of the coronavirus pandemic have hit a nerve with the Chinese Communist Party, which appears to be using tariff threats as retaliation. Barley and beef exports are at risk with concerns spreading to other export industries such as seafood and wine.⁵

In the U.S., infectious disease expert Dr. Anthony Fauci warned Congress that states prematurely reopening businesses are at risk of additional outbreaks.⁶ During a Senate hearing he also warned that the U.S. doesn’t have the pandemic under control causing the already volatile Dow Jones to drop.

The International Monetary Fund (IMF) is also likely to cut global growth forecasts again after the pandemic is hitting countries harder than projected, particularly emerging economies. During a press hearing briefing, IMF managing director Kristalina Georgieva said: “With the crisis still spreading, the outlook is worse than our already pessimistic projection. Without medical solutions on a global scale, for many economies a more adverse development is likely.” ⁷

On a more positive note, however, she also mentioned that with overseas bond issuance, “emerging markets with good fundamentals have been able to issue at very reasonable yields which [in-turn] helps the rest of the world through this difficult time”. ⁷

Transcending the crisis

For many, recent months have been ‘business as usual’ with some managing to positively transcend the pandemic. The virus has had far reaching impacts for many, including our clients. One of these clients is HoMie, a social enterprise and fashion label providing employment and opportunities for at risk youth. For an inspiring story of adaptation and innovation in the face of adversity, watch the video below to see how they continue on the path of business as usual during the crisis while still giving back to the community.

¹Smart Company, “Unconscionable”: Business owners frustrated amid reports Morrison could wind back JobKeeper payments, published on 12 May 2020, accessible at: https://www.smartcompany.com.au/coronavirus/jobkeeper-wind-back-morrison/, accessed on 13 May 2020.

²The Australian Financial Review, Almost 100,000 drained super accounts to spark fee hikes, published on 12 May 2020, accessible at: https://www.afr.com/companies/financial-services/almost-100-000-drained-super-accounts-to-spark-fee-hikes-20200512-p54s6s, accessed on 13 May 2020.

³Sydney Morning Herald, Banks slash savings rates on back of RBA moves, published on 13 May 2020, accessible at: https://www.smh.com.au/business/banking-and-finance/banks-slash-savings-rates-on-back-of-rba-moves-20200512-p54s5z.html, accessed on 13 May 2020.

⁴ News.com.au, Coronavirus Australia: House prices could fall by up to 30 per cent in wake of pandemic, published on 14 May, accessible at: https://www.news.com.au/finance/economy/australian-economy/coronavirus-australia-house-prices-could-fall-by-up-to-30-per-cent-in-wake-of-pandemic/news-story/d4d19c8acec670b2833bee8dbd1dea2b, accessed on 14 May 2020.

⁵The Australian Financial Review, China asked to explain beef bans as trade row grows, published on 12 May, accessible at: https://www.afr.com/companies/agriculture/china-asked-to-explain-beef-bans-as-trade-row-grows-20200512-p54s5c, accessed on 13 May 2020.

⁶CNBC, Dr. Anthony Fauci warns Congress reopening risks more outbreaks and backfires on local economies, published on 12 May 2020, Accessible at: https://www.cnbc.com/2020/05/12/dr-anthony-fauci-testifies-before-congress-on-coronavirus-heres-what-he-says.html, accessed on 13 May 2020.

⁷Financial Times, Global economic outlook still worsening, says IMF, published on 13 May 2020, accessible at: https://www.ft.com/content/528476ca-b542-4b7a-8e43-b50e41f0eeb1, accessed on 14 May 2020.

Past performance is not indicative of future performance. All investments carry risks.

U Ethical (a registered business name of Uniting Ethical Investors Limited ABN 46 102 469 821 AFSL 294147). This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. This document may include general commentary on investment methods, market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused.

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