From Jonathan Bayes, consultant Chief Investment Officer, Bentleys Wealth Advisors
Last week we highlighted our concerns in relation to market levels and the seemingly confident attitude to economic recovery in the face of renewed COVID-19 outbreaks.
This week we thought it worth expanding upon, particularly now that authorities in each of Australia, the UK and United States have taken actions in recent days to enforce further social restrictions.
Restrictions on social mobility hinder economic activity, obviously.
Government support to the economy is a necessary and welcomed ballast to soft demand, but it is finite in the sense of cash-handout support to business and citizens, and no amount of stimulus can generate a recovery in underlying demand until such time as the population feel safe to return to their previous behaviours.
This the sticking point, and worth acknowledging.
We are currently only 3-4 months into this pandemic and the best (and most optimistic) guess on vaccine development points to the 1H of 2021.
Which by default suggests that we are still under half-way through this pandemic in terms of its likely length.
The passage of time at sub-optimal capacity for many businesses and households, even with the support of the government, is going to see more significant financial hardship inflicted.
I guess what I am trying to infer here, is that its still reasonably early days, and patience is going to be a deserving attribute as 2020 continues.
The outbreaks in Victoria will likely happen in other states.
COVID-19 is insidious.
Holding cash and being patient will likely provide us with opportunities to add to portfolios in a constructive manner as the months progress and the repetition of the manic-depressive ‘open and shut’ movements go on.
U.S Election a trigger for value stocks
Lastly, its important to distinguish between sectors and stocks within the global equity market.
Much has been made of the gap that has widened between ‘growth’ and ‘value’ names in recent years, with the poster-boy stocks for ‘growth’ such as technology and healthcare at or near all-time highs despite potential regulatory risks under a Biden presidency.
The market has crowded into big tech and pharma making it potentially vulnerable to sellers as we draw closer to the Presidential election in early November.
In fact, it’s quite possible that the election serves as a trigger for re-balancing equity market valuations and triggering support for those ‘value’ names.
Amongst the more mundane or pedestrian-growth stocks, valuations and ownership are far less onerous nor concentrated.
Though we do think many opportunities will emerge in the months to come, we would highlight that already several of the stocks in our Australian equity portfolio look excellent value right now, even if they feel a little friendless.
Nufarm (NUF) has sadly collapsed back to $4.00, but at the current level looks to be 5x EBITDA or less when stripping out the potential for its Omega-3 infused canola seed technology.
Market concern or not, NUF is a stock we think is worth nearer $7 in the coming year.
Challenger (CGF) too in the low $4.00 range begins to look outstanding value also, as does Invocare (IVC) in the low $10’s and Telstra (TLS) too near $3.00.
Each of CGF and NUF have major Japanese shareholders that could consider mopping up minorities should the share prices continue to wallow at these levels for the longer term.
|Monday||US Dallas Fed Index (JUNE)|
|Tuesday||AU ANZ Weekly Confidence, AU Private Sector Credit (MAY), CH Manufacturing/Services Indices (JUNE), US Chicago Fed Manufacturing (JUNE), US Consumer Confidence (JUNE)|
|Wednesday||AU Australian Industry Group Manufacturing (JUNE), CBA Manufacturing Index (JUNE), AU Building Approvals (MAY), US ADP Employment (JUNE), US Challenger Job Cuts (JUNE), US Markit Manufacturing Index (JUNE), US ISM Manufacturing Index (JUNE)|
|Thursday||AU Trade Balance (MAY), US Weekly Jobless Claims, US Weekly Consumer Confidence|
|Friday||AU Australian Industry Group Construction (JUNE), CBA Services Index (JUNE)|
This week packs a lot of data from June which will be closely studied, however the rapid escalation in infection numbers both domestically in Victoria, and across the Sunbelt states in the United States, is increasingly drawing investor attention.
We repeat the view that we are only as strong as our weakest link and if outbreaks continue to occur, the prospect of regained social mobility continues to be pushed further into the future, thus hindering consumer and business activity.
The U.S 4th of July Independence Day holiday will likely lead to less activity as we approach the weekend and the Monday U.S holiday.
Friday 5pm value
|S&P / ASX 200||5904||-38||-0.7%|
|Property Trust Index||1251||-25||-2.0%|
Friday closing values
|U.S. S&P 500||3009||-88||-2.9%|
|Mon 29 June||Div Ex-Date – APA Group (APA), Transurban (TCL), Charter Hall Retail (CQR), Dexus (DXS)
Div Pay-Date – Harvey Norman (HVN)
|Tue 30 June||Div Ex-Date – Metrics (MXT/MOT)
Div Pay-Date – WBCPG
|Wed 1 July||Div Ex-Date – many ASX-listed ETF’s (too many to mention)
Div Pay-Date – Pendal (PDL)
|Thu 2 July||n/a|
|Fri 3 July||Div Pay-Date – Macquarie (MQG), National Australia (NAB)|
Monday 29 June 2020, 5pm
For more information on the above please contact Bentleys Wealth Advisors directly or on +61 2 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decision based on this information.