Tech, trade and Trump

The top 200 companies of the Australian Stock Exchange (ASX) experienced significant losses during the last quarter of 2018, but half of those losses we recovered in the first two weeks of 2019. Is market volatility here to stay?

Tony Sacre, CEO of the Bentleys Network, shares his views on tech, trade and Trump, and their likely impact on Australian markets over the year ahead.

Market volatility

While it’s extremely difficult to predict what will happen in markets, economic and political concerns across the world suggest that market volatility is here to stay – at least for the first half of 2019.

Both the United States of America (US) and China are experiencing some economical and political challenges which are impacting global markets.

US markets have performed well over the past couple of years, particularly as a result of tax cuts introduced by Trump early into his administration. However, the effect of these tax cuts are starting to settle.

In China, the economy’s growth rate has slowed down from an extraordinarily high 12 per cent (more typical of a developing country) to 6.6 per cent, which is still a strong growth rate but it is the slowest rate of growth experienced by China in a decade.

While the current trade dispute between the US and China may have contributed to their economic slow downs, the likely outcome of current talks remains uncertain given little detail of the discussions has been shared.

Australia and New Zealand can expect to feel some impact from the market slow down experienced by these global economic superpowers. Australia, in particular, can expect some market volatility in the first half of 2019 as the banks respond to the Financial Services Royal Commission and as our country braces for another federal election.

It is important to note that market volatility is not necessarily a bad thing, as with volatility comes opportunity. Market volatility can present challenges for some sectors (such as the Australian banking sector at present) and opportunities for others – particularly for Australian exporters who are presently enjoying a low Australian Dollar (currently trading at 71 US cents). 

Australian housing prices have dropped by up to 11 per cent in some states. This too, in the context of our political and economic landscape, means that we are seeing people spending less as they feel less wealthy. Compounding this lack of liquidity, we see banks slowing down their capacity to lend to residential and commercial customers as a result of tighter lending criteria, and businesses spending less on capital expenditure (not uncommon leading into a federal election).

We expect the Australian market to pick up in the latter half of the year when the federal election is over and political uncertainty has reduced. Then, we will hopefully see a return of capital expenditure by businesses and a turnaround in the banking sector as they will have started to address the Commissioner’s requirements following the Royal Commission and be down the path to implementing the right remediation processes.

Three tips for investors

  1. Talk with your financial advisor to achieve a shared understanding of your goals and aspirations
  2. Avoid taking a short-term approach to wealth creation by trying to read market movements
  3. Stay focussed on your long term goals, and methodically stick to your plan.

And one key tip for SMEs

  1. Talk to your accountant and financial advisor. They can help guide you through the myriad of matters that are causing market volatility during a very busy 2019.