MARKET VIEW
19 means investors are in a more ‘ risk on ’ mentality , which tends to help the Aussie dollar , as does the strength of commodity prices .
Turning to the property sector , the ASX 200 A-REITs Index has generated a small 1.1 % capital gain for the year to date and returned 1.8 % including dividends , underperforming the wider share market ’ s 6.5 % capital gain and 8.0 % total return .
Global listed property has done well , delivering on average double digit returns . The outcome was heavily dependent on the US REIT market , which returned 15.7 %. The sector looks to be past its cyclical worst , but investors may continue to remain wary of large parts of it ( with the exception of industrial ) while there are still COVID-19 outbreaks and while there is ongoing uncertainty over the longer-term damage done to CBD offices and to brick and mortar retail . As the latest National Australia Bank survey of commercial property showed , sentiment has continued to improve but remains negative overall . The very strong industrial sector has not been enough to carry the whole asset class up with it . Sentiment still remains deeply negative for CBD hotels but is also still strongly pessimistic for retail and office property . While industrial is pushing higher , the survey found that rents and capital values are expected to continue to decline in both the office and retail sectors over the next couple of years . A return to something like normality is still some way down the track : The office sector is expected to be in better shape in two years ’ time “ likely reflecting vaccine rollout and more workers returning to the office ”, as the NAB commentary said , but , even two years out , the retail sector expects to still be struggling , suggesting a less than strong outlook for the asset class .
Australian shares have had a good start to the year : The ASX 200 Index up is by 6.5 % in capital value and by 8.0 % including the value of dividends . The financials ( ex-property ) have led the way , with a 16.4 % gain , and high commodity prices in the recovering world economy have helped the miners to a 10.3 % gain . Consumer discretionary stocks have also done well and are up 9.7 %. The IT sector has suffered from the global sell-off of tech stocks and is materially down , though is still up materially on a year ago .
Australia ’ s business prospects are robust . The latest National Australia Bank business survey found a
“ very strong result , with many aggregate indicators reaching new highs . Business conditions reset last month ’ s record high , with trading , profitability and employment all reaching fresh highs . Business confidence also set a new record and implies that conditions will remain strong in the near term ”.
Consumer confidence measures are also supportive evidenced by the weekly ANZ / Roy Morgan consumer survey . The latest official forecasts , in the May 11 budget , suggest that the economy is set for 4.25 % growth in the year to June 2022 and that the unemployment rate will drop to 5 % by June 2022 and to 4.75 % by June 2023 .
Recent equity gains are understandable against this backdrop . The banks will continue to write back the provisions they had originally made against COVID- 19-related losses , which have not materialised . The resources sector is in strong shape and , as in many other countries , there is a burst of previously pent-up spending on its way . With monetary policy remaining very supportive , fiscal policy has also come to the party with a significantly more expansionary budget than had been expected as it contained a range of business and consumer friendly initiatives and pushed deficit repair out into the medium term . Whilst COVID-19 continues to spring surprises ( mostly unpleasant ones ) and previous ideas about early travel ‘ bubbles ’ have had to be revised , the outlook appears to be favourable for further equity gains .
Bruce McLeary
Associate Senior Analyst ( 07 ) 3006 7219 bmcleary @ burrell . com . au
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