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”.
Subscribe to 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.
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
Do we need central banks, or is it time to privatise money?Analysis Free banking is one alternative to central banks, but would switching to a radical new system be worth the risk?
-
How to improve economic output using the supply-side approachBoosting potential economic output through public investment is crucial, says David C. Stevenson
-
Mexico passes controversial judicial reform – will it hurt investors?What will Mexico's new reform mean for investors and the country's economy?
-
Indonesia’s new $30 billion capital city is hit by 'delays'What is causing the delays in Indonesia’s new capital city and when will it be complete?
-
Maduro clings to power in Venezuela – can he last?While Maduro clung to his presidential seat, Venezuela's election protests paint a different picture
-
CrowdStrike IT outage: a global meltdownMillions were affected by the CrowdStrike IT outage recently, which grounded flights and took the news off the air. Was this just a hiccup or a warning of much worse to come?
-
Revolut founder Nik Storonsky cashes in – what's next for the fintech billionaire?Nik Storonsky has shaken up the banking industry with Revolut. He is now preparing a new project that could do the same to the venture capital sector
-
Is local production making a comeback?Companies return production closer to home and shorten their supply chains due to the pandemic and geopolitical turmoil. How should investors react?
