Why I'm not selling shares yet
It seems bizarre that in a world where no business as earnings that can be accurately estimated, hundreds of thousands are employed due to government assistance to private entities (via JobKeeper) and Australia is in the middle of what is not only our first recession in longer than my lifetime but one that has the potential to be of significant severity that I have been recommending maintaining and in some cases increasing client exposures to equities.
In fact, even writing that sentence feels downright perverse and wrong. In the face of all of these obvious and significant headwinds, how does it make sense to increase exposure to these “risk on” assets.
Today I’m going to do my best to explain my thinking with out using the jargon and complexity that the current global environment typically requires.
Firstly, while the Coronavirus has been a significant disrupter of daily life it has also in my estimates bought forward approximately 10 years worth of technological adoption. If you don’t believe me, next time you leave the house just watch how quickly a large majority of businesses have moved to being cashless due to Coronavirus. However, this trend has moved from beyond just payments through to e-commerce and more. While my generation is very comfortable online shopping and taking advantage of the convenience, generations above mine have been sceptical of online shopping even in 2020. However, seeing concerned retirees use click and collect for their groceries for the first time during this pandemic has significantly increased adoption, use and ultimately comfort of using these facilities.
Periods of great technological upheaval can be an amazing place to invest should investors find the find opportunities.
The second reason as to why I am maintaining confidence in Australian businesses is due to immense heart and ability to innovate that our greatest companies have shown. Stories of pubs transforming into supermarkets, distilleries transforming into hand sanitizer makers are just common examples of our ability to adapt, improvise and ultimately overcome hardships. For over a century our businesses have shown a fantastic ability to survive and thrive despite many hardships along the way. There is a reason that Bloomberg recently called Australia the world’s best performing stock market over the past 100 years!
Thirdly, there has been a significant amount of governmental support available to businesses (including the aforementioned JobKeeper). Additionally, I suspect that future government stimulus will come via major infrastructure and development projects with the intention of supporting businesses across not only the construction sector but also the building materials and supply side. This will trickle down to other industries as cashed up tradies look to spend.
Forth, as I’ve mentioned previously historically low interest rates around the world are causing investors to search outside of the more traditional safety of fixed income markets in order to achieve their investment return mandates. The combination of low yields elsewhere, the relatively high past yields of Australian businesses is likely to attract investment. Additionally, the low borrowing costs will enable firms to kickstart projects and greenlight investments that in a higher rate world are not viable.
The last reason to be bullish for Australian equities moving forward is due to the underlying nature of significant parts of our economy. Major exports like Iron ore will be supported by the ongoing stimulus in China fuelling demand and the long term thematic demand for Australian goods is likely to remain strong. I believe that as the rest of the world looks to kickstart their economies, the export driven nature of our biggest businesses will also benefit from these stimulus measures.
Lately, within Jonas Wealth Management we have been positioning clients towards companies with more defensive earnings streams and iron clad balance sheets. While the future is always uncertain, it appears to be a prudent decision at the moment to look to use this rally to minimise exposure to high risk names and aim to rebalance portfolios to a more conservatively managed investment mixture.