The end is near
The Australian economy is now experiencing its first recession in close to 30 years. The initial impact of the
COVID-19 outbreak sent domestic
GDP down -0.3% in the March quarter, with experts predicting a contraction of as much as -8.4% in June.
But what does it mean? Clearly nothing as markets continue to rally, the
ASX 200 (ASX:XJO) ending up 105 points or 1.8% for the day; it is now down just 11% for 2020.
Australia’s contraction was among the ‘best’ in the world, beating the likes of the
US (-1.3%),
UK (-1.9%) and the
EU (-3.75%), thanks primarily to our continued reliance on construction and mining exports. The global rally also continued with
The Dow Jones adding 2%, four stocks rising for everyone that fell and both banks like
JP Morgan (NYSE:JPM) (+5.4%) and airlines,
Boeing (NYSE:BA) (+12.9%) leading the way. I can’t help but fell a strange disconnect between the issues facing the global economy and the markets charger ever higher.
Questionable decisions
Australia’s Clime Investment Management (ASX:CIM), which operates its own managed fund products and financial advice decision has been identified as the unlikely buyer of financial services licensee
Madison Financial Group, for $4.5 million. This will add compliance, administration and technology delivered to financial advisers to their diverse range of services.
UAC Energy (UAC:BKK) lobbed a takeover bid for
Infigen Energy Ltd (ASX:IFN), one of Australia’s few listed renewable energy providers focused on wind.
The offer was $0.80 or $777 million, with the share price immediately trading in line. Given the uncertain market, I’d suggest shareholders approve the deal despite protestations from the board. Chinese internet giant
Net Ease (NASDAQ:NTES), has flagged a re-listing on the
Hong Kong stock exchange, seeking more capital to expand internationally, despite some 89% of revenue coming from China 10 years after its initial global expansion.
Free money?
Amazon Inc (NASDAQ:AMZN), was the latest business to head to markets for more debt to fund its operations, managing to secure a three year loan at a rate of just 0.4%. This comes as Australian property experts predict that mall values could fall as much as 30% in the short term as rental receipts fall precipitously; not a good outlook for the likes of
Scentre Group (ASX:SCG),
Vicinity Centre’s (ASX:VCX) and
Unibail-Rodamco-Westfield (ASX:URW).
The highlight of the day was no doubt the unexpected growth in
Chinese PMI’s or leading economic indicators, with services moving into growth from 47 to 55 and manufacturing 54 from 47, suggesting the worst may be over, particularly for Australia. This impacted the likes of
Northern Star Resources (ASX:NST) and
Newcrest Mining (ASX:NCM), in my view the
AUD rally will be short-lived as the real issues facing the economy come to light.
The daily report is written by
Drew Meredith, Financial Adviser and Director of
Wattle Partners.