CHRIS BURRELL ’ S BLOG
to produce 15 % returns . It is important not to let the negative technology sentiment impact on some good buying opportunities in the Value and Growth at Reasonable Price ( GARP ) categories . What we need to do is to avoid sentiment buying of stocks in the Growth at Any Price ( GAAP ) sector both in Australia and overseas . Reporting season in Australia in the last two weeks of February may see some mean reversion of share prices for a number of stocks that were early beneficiaries of COVID such as supermarkets and hardware , which have had two years of momentum and support . Any volatility in these stocks may produce opportunities to add them to portfolios , as Burrell portfolios are generally underweight in these stocks , given they have been overpriced for 12-18 months .
COVID
The US COVID deaths have now exceeded 900,000 . This is a staggering number and should make us all pause the calls to return to a speedy pre-COVID normalcy . Whilst we would all wish to have COVID behind us , and there are some encouraging signs including the less severe Omicron variant become increasingly dominant and the Pfizer and Merk antivirals , the Spanish flu global pandemic over 100 years ago indicates the best behaviour is one of caution amid the guarded optimism .
Paul Bloxham , Chief Economist , HSBC Australia and New Zealand
In a seminar in Brisbane on Friday 4 February 2022 , Paul presented his annual outlook . He noted inflation in the USA at 7 %, Europe at 5.1 % and Australia in the December quarter at over 3 %.
In terms of economic growth , the first half of 2020 saw a huge decline with the initial impact of COVID , moderating in the second half . 2021 showed a strong recovery at 5.7 % with partial reopening of Western economies and policy stimulus . 2022 slows to growth in the 4 % range and 2023 3 %. The reason for these lower numbers is that the huge stimulus both fiscal and monetary for COVID will not repeat going forward . The big positive is that it looks as if Omicron is less severe but epidemiologists are split 50-50 as to the potential for another variant of concern to occur . Leaving Omicron aside , the savings of fiscal stimulus will support GDP over the next 12 months in economies around the world .
Returning to inflation this is the other main risk . Two factors have caused the inflation : a ) Strong demand for goods . With people working from home there was a tilt towards goods especially durable goods rather than services and this ran into ; b ) Supply chain problems caused by goods being less available e . g . due to China having a zero tolerance policy .
Chip shortages and transport have exacerbated the supply chain issues .
The combination of a + b = inflation .
While initially central banks saw inflation as transitory , it has become clear that there is now an element of inflation , which is not transitory and is flowing on to other factors including wages . This in turn has led to interest rate expectations in the US of three rises in the current year and two rises in 2023 .
Asian economies have done better than Western economies . The goods demand is a driver for Asia . As Western economies pivot to restore services demand , this may see some amelioration in Asian goods demand . If this were to occur , China may announce further infrastructure stimulus towards the end of calendar 2022 . This would be positive for the risks around iron ore prices and metallurgical coal .
Australia has done better than most Western economies . Our geography has again been a positive , as it was during the Spanish flu . The financial stimulus saw household savings rise from the usual 5 % to 22 % then fall , but with further lockdowns the savings have continue to accrue with HSBC estimating some $ A200 billion in excess savings which will support growth going forward in Australia . So Australia is expected to see positive growth , notwithstanding the Omicron head wind . Within that overall growth , there will be shifts such as working from home ( WFH ) for 10-20 % of the population . Inflation is lower than overseas . The property market is strong . COVID has seen savings channelled into houses , as people spend more time at home . HSBC expects housing to cool over the next 1-2 years , although still show positive growth in the single digits . The lack of immigration resulting in no population growth will also support a more benign housing market with fixed interest rates beginning to rise .
The three growth drivers that Australia should focus on include education , migration and climate / energy policy .
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