Millions of Australians are locked down. The stockmarket has reacted by hitting a record high. Australia has largely kept Covid-19 at bay thanks to tough border policies, but the virus is now gaining a foothold. At the end of June Sydney was placed under its strictest lockdown so far. The army was deployed this week to enforce the rules.
A lockdown in Brisbane has also been extended. Officials are concerned about expanding clusters of the Delta variant. While cases are still low, Australia is vulnerable if things get out of control: a slow rollout means that just 15% of the population has been fully vaccinated.
Stocks and property soar
Asset prices tell a different story. The Reserve Bank of Australia, the central bank, slashed interest rates to just 0.1% last year, say Shane Wright and Jennifer Duke in The Sydney Morning Herald. That has helped drive “record high house values in almost every corner of the country”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Prices have risen by 16% over the past year, “the fastest increase in more than 25 years”. The renewed lockdowns mean even more stimulus is probably on the way. Stocks are also buoyant. The benchmark S&P/ASX 200 index hit a record high on Monday, boosted by Square’s $39bn bid for local star Afterpay (see page 11). The index has gained 12% so far this year, close to the global average gain. It is up by 55% since the nadir of March 2020.
The Australian equity market is heavily weighted towards the financial and commodity sectors. Bank shares plunged in 2020 on fears that there would be “a sharp increase in customers defaulting on loans”, says Stuart Condie in The Wall Street Journal. The worries proved overdone. The banks set aside more cash than they needed to cover losses and their shares have soared. Commodities producers such as Rio Tinto have also been lifted by strong iron-ore prices.
A commodities boom has saved Australia before. Exports to China helped the country dodge the worst of the global financial crisis. True to its “lucky country” moniker, it had enjoyed nearly 30 years without a recession. That record came to an end in the first half of 2020, but GDP then bounced back swiftly thanks to an apparently successful containment of the virus.
Now there could be a double-dip recession, says Ben Butler in The Guardian. The strict lockdowns mean that the current quarter is already a write-off, while the economy may also shrink in the final three months of the year (a recession is defined as two consecutive quarters of falling GDP). Gareth Aird of Commonwealth Bank says he think “significant restrictions” will have to stay in place until 80% of the population is vaccinated. That could be “late October at the earliest”. Yet markets, high on easy money, seem barely to have noticed.
-
Two thirds of easy access savings accounts come with restrictions – can you access your savings in an emergency?Out of the top 30 easy access savings on the market, 22 come with some sort of restriction on how fast you can access your money, according to new research.
-
Most popular London boroughs: Full list of in-demand places to move toA deluge of people move to or within Britain’s capital each year – but which area is the most popular? We look at the most in-demand London boroughs in 2025.
-
David Ellison: America's new media mogulDavid Ellison is building a mighty new force in old and new media. Critics worry that he will prove to be a Trumpian patsy. Is that fair?
-
How Next defied the odds and positioned itself as a British high-street stapleNext rose from a near-death experience and now thrives as a high-street staple. What's driving its success – and should you invest in the retailer?
-
Why investors should avoid market monomaniaOpinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
-
The Palace of Westminster is falling downThe Palace of Westminster is in need of repair, but the bill is prohibitive, says Simon Wilson
