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US macro and Australia’s outlook

The Macro View

Overview

Alan Kohler, Editor-in-Chief of the Eureka Report and a director of StocksInValue, took the opportunity to record a video interview between Alan and John Abernethy, Clime Asset Management’s Chief Investment Officer, as a special edition of John’s weekly column The Macro View. Below were the takeaways:-

Summary – Investor takeaways

Key points Stocks, sectors and markets impacted
  • We are closer to the end than the beginning of money printing and zero official interest rates in the US.
  • What happens after this is anyone’s guess. There are no historical precedents given how long US QE has gone on.
  • The end of QE will not however see the end of the perversion of interest rates.
  • Subdued economic activity, low bond yields and elevated asset prices are likely to sustain for a while.
  • The Australian equity market is slightly overvalued.
  • This doesn’t mean there aren’t pockets of value.
  • The Australian population will compound at 1-2% per annum indefinitely.
  • There will always be long-term economic growth in Australia.
  • There are some basic companies which trade off this growth: mortgage lending, superannuation, non-discretionary retail, transport, power. But don’t expect much from them and don’t overpay for them.
  • Australia has not had a recession for 23 years, and economic imbalances like a high cost structure have accumulated.
  • Expect an economic downturn in Australia during the next two to three years.
  • Given this mixed outlook for Australia, investors should look for stronger growth elsewhere.
  • China’s growth cycle and the emergence of its middle class are fairly predictable.
  • The early theme was resources and this will continue for a while, but prefer stocks leveraged to the Asian consumer, especially the emerging Chinese middle class.
  • Unfortunately there aren’t many of these on the ASX.

 

Analyst: John Abernethy from Clime Asset Management

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