February update

With festivities linked to New Year celebrations now well behind us and hot cross buns clearly visible on many supermarket shelves, it’s hard to believe that February is almost upon us.   2019 was an epic year for share market returns – something which provided a strong tailwind for returns in January. The Australian Market has recently reached an all-time high, making it ripe for consolidation. Should a market “roller coaster” eventuate, remaining calm would be prudent as we look for new opportunities.    The Corona virus is now making global headlines. Companies with exposure to China are looking like they’ll face a difficult time over the coming months. Many have already been hit - with household names including Qantas, BHP and A2 Milk being sold off. Only time will tell how bad things get, however much of this is contingent on China containing the issue. The global economy as a whole should be stronger in 2020 from a recovery in manufacturing activity, less trade uncertainty, more China stimulus and a lower US dollar. An improvement in manufacturing activity will support the Eurozone and emerging markets in 2020 along with trade-sensitive economies like Japan, Korea and Taiwan. While there is considerable political risk on the US calendar this year, US and China trade tensions have eased (for now). The impeachment trial of President Trump is currently in the hands of the Senate. It is very unlikely the Republican-controlled Senate would vote to impeach Trump. The more important issue is the Presidential Election in November where Vice President Joe Biden has been the front-runner for the Democratic nomination, but has recently been overtaken by Bernie Sanders. If the Democratic Party nominate a far-left leaning candidate like Bernie Sanders or Elizabeth Warren, share markets may get hit due to concerns about more regulation on big companies, compliance and higher taxes. For now, the base case is that a Trump victory is the most likely outcome. On the local front, recent inflation figures for Australia were recently released. The year on year inflation figure came in slightly higher than many economists predicted which should keep the RBA on the sidelines for a little longer. Commsec also released the State of the States report where Victoria retains its title as the best performing economy. Unbelievably, Tasmania holds second spot with particular strength in population growth. New South Wales remains strong across various indicators with ACT in fourth supported by a strong jobs market and solid demand for homes. Queensland and South Australia remain fifth and sixth – with little to separate the two. While Western Australia and the Northern Territory continue to struggle with stubbornly high unemployment. It is important to remember that all markets go in cycles. Many will often hear me say that markets rise and fall, however we never know when! The only thing we can control is how we have capital invested, and strategies to withstand the storm. Joshua Fileti