ASX Surges 1.6pcm: Investors Hedge Bets on Stimulus

ASX Surges 1.6pcm: Investors Hedge Bets on Stimulus

ASX Surges 1.6pcm

Investors Hedge Bets on Stimulus

Amidst a shortened trading week, he Australian Stock Exchange (ASX) index recorded an 11-year high, confirming Australia’s position as one of the top performing share markets in 2019. With the intent to bolster economic growth and boost company profits, the revision of fiscal stimuli and interest rate cuts have paved the way in terms of achieving the recent highs. However, domestic disclosures have not been the only contributor to this recent surge, but rather, news spanning from foreign global markets have weighed in the matter.

On the local front, business confidence levels for May have reached near 52-week highs since July 2018 in response to the appointment of Scott Morrison during the month of May in accordance with the NAB Business survey. It has been a positive start to the holiday shortened week for the local share market as the ASX index continues to climb 135.3 points or 2.1% to 6580.8 points, largely due to broad based gains.

Analytically speaking, the causality found between US President, Donald Trump and his decision refrain from pursuing higher tariffs levied against Mexico. Subsequently,  gains in the S&P/ASX200 has been closely linked, with that deal driving a 102-point of 1.6% gain on the Australian Securities Index. This furthered the benchmark measure to 6546.3 points.

With the exchange closed on Monday for the Queen’s Public Holiday, Tuesday’s stout gains on the ASX also incorporated a solid lead from Wall Street, which similarly recorded its best week of the year amid firming expectations of US rate cuts in coming months.

‘It’s a case of catch-up to global moves after the long weekend for Australia’ – JP Morgan Asset Manager Kerry Craig Claimed

Although a global lean towards easing fiscal policy at the start of the year has played a noteworthy role in lifting market valuations, domestic movements have also played a pivotal role in the development of the Australian Securities Exchange.

In particular, optimistic market sentiment has been characterised by the surprise election of Scott Morrison victory in May’s. That said, the reappointment of the Coalition government essentially removed the threat of a crackdown on negative gearing and franking credit refunds. Appeasing to a softer policy settings will strengthen the already flagging household sector over the coming years, whereby, the ASX’s outperformance will continue to eclipse the housing sector.  

Suffice to note that all but one sector, namely the utilities sector, is making improvements towards trading. Sectors that succeeded market consensus included the likes of healthcare, information technology and communications sectors. Analysts have prompted that although financials and materials are driving much of the broader gains, the re-appointment of the Coalition government have pioneered such positive movements.      

Additionally, the major banks surged, with analysts observing that the reduced risks to regulation, credit quality and the mortgage market changing under a Coalition-led government. From a market perspective, the prospect of a Labor government had engendered concerns on a range of fronts, namely: higher wages; negative gearing and capital gains discount changes; franking credits and further pressures on the banks. While the aforementioned evidence suggests that investors will benefit from the election victory, analysts suggest that the return of the Coalition Government represents the continuity of the status quo.

The ASX reaped benefits from the aforementioned lift in share prices of banks and miners stocks this year. Investors have taken a more tractable view on Australia’s leading lenders, after the removal of the 7% interest rate floor requirement when assessing a potential borrower’s capacity to repay a loan.

In a similar fashion, the closure of the Vale Brazilian mine this year saw iron ore prices rise above $US100. While adhering to Keynesian theory of supply and demand, the shutdown of the Vale mine translated into strong gains for the likes mining giants BHP and Rio Tinto as well smaller companies such as, Andrew Forrest’s – Fortescue Metal.  

Martin Currie Australia portfolio manager Will Baylis claimed that “Even a month ago I would say people were factoring in almost low chance of a lift in household spending” Mr Currie furthered this notion by adding that “the market is building in a higher level of consumption over the next 12 to 18 months.”

Additionally, the Rba recent 25 basis points cut to the cash rate earlier this month to 1.25%, serves more than just a way of stimulating the economy. The rate cute goes beyond and is rather suggestive of the prospect of an imminent income tax relief and has glazed the outlook for the economy after a slowdown in consumer spending.

In spite of the record highs, Investors Mutual portfolio manager Hugh Giddy forewarned that the bearish trends have left the ASX looking ‘peaky’ and ‘quite pricey’ in a historical context.

Although those who invest in the equity market have reaped the benefits of the surging Australian index, investors have pointed to the burgeoning gap between the income on offer from equities and term deposit rates. By and large, political headwinds have fostered sharemarket buoyancy, with the ASX 200 remains 3.8% off its all-time closing high of 6829 points reached on November 1, 2007.

By Jordan Nikopoulos

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