Market volatility, six months on

The world is a very different place today compared to six months ago, when we last explored the state of our market. Trade wars, elections, local and global events can all cause uncertainty and, in turn, market volatility – the effects of which can be felt by all businesses and families.

In this analysis, we consider how market volatility – or ‘periods of uncertainty’ – has changed over the past six months, and what it might mean for growth businesses.

Summer of 2019

If I cast my mind back to the beginning of 2019, I was worried about how long the trade war between the US and China would last, what would happen with the Australian electoral landscape, what would happen to the Australian macro-economic picture (and what would the RBA do), how would our brethren across the ditch (New Zealand) deal with the slowdown in their services sector, and what on earth would the Brits do with Brexit. All of these concerns impact market volatility, consumer confidence, which in turn impact businesses’ ability to grow.

Upon reflection, I’m confident I would have predicted one out of five outcomes correctly. I felt that the RBA would hold off until after the election, which they did. They cut interest rates by 25 basis points in early June 2019 (a little earlier than I’d thought, but I’ll claim it as a point). I am surprised at the malaise within the New Zealand economy, although I do like their work on developing a well-being index. It has a very Nordic appeal to it. I certainly did not expect the US-China trade war to go on for as long as it has. I can’t believe that Brexit is still unclear, and I was surprised at how the Australian election unfolded.

Everything has changed

In many ways, domestic matters in Australia have calmed post federal election. Although, any cursory glance at the ASX will show that our shares are very much susceptible to moves in international markets. The US-China trade war is having a big impact on confidence. This impact that can be monetised and evaluated. In fact, this is precisely what the International Monetary Fund (IMF) has recently calculated.

The IMF announced in June that the impact of the US-China trade war ongoing will be about 0.5% of global GDP (output). This small percentage leads to a $455 billion reduction in output. To put this number into perspective, this equates to about a third of Australia’s GDP or more than double of New Zealand’s GDP. To say it’s significant is beyond being an understatement.

Around the world

For businesses, it means that China and the US, Australia’s largest and third largest trade partner respectively, will see their economies shrink, which may have an impact on Australian goods and services into each country. The glass half full approach would suggest that there may be opportunities for Australia to replace some of the ‘gaps’ left behind, but I feel our economic structure doesn’t necessarily support this.

Rather, as our currency continues to drop off the back of shrinking interest rates in Australia and New Zealand, I believe there is opportunity leverage our price competitiveness on an international scale. As such, it may be the right time for organisations looking to expand offshore to do so. This can be a solid strategic decision for organisations to try at a time when the AUD and NZD are cheap.

Growth opportunities

The Australian marketplace has become more stable than it was five months ago, with a government that has formed a majority and a central bank that is looking to stimulate growth. This means that Australian firms looking to expand offshore will be doing so off a solid domestic base.

Similarly, New Zealand has a solid foundation of government, a strong reputation internationally, and a relatively weak currency, which are a good combination for businesses looking to expand into other markets (or find capital partners to assist with domestic growth).

If you are ambitious about growth for your business, it may be timely to talk with your local Bentleys advisor. Your advisor can help you manage risks and volatility, assess market opportunity, and design the strategy to effectively position your organisation for growth.

General Advice Warning: This article has been prepared for the purpose of providing general information, without taking into account any particular investor’s individual objectives, financial situation or needs. You should therefore, before making any personal decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to your own objectives, financial situation and needs. We would be only too pleased to help if we can.