The market is now shifting towards a growth phase, out of the previous “hope” and “despair” stage, according to SG Hiscock, with the outlook for 2021 being positive. The change aligned with a positive turn in earnings in October, out of the previous depressed stage from mid-March to September.
But the COVID crisis has its differences from other recessions in history – one being that household income increased through the period, due to JobKeeper and other fiscal support measures.
SG Hiscock AREIT portfolio manager Grant Berry noted the savings rate was the highest it had been since the 1970s.
“It raises a few questions. Is the savings rate this elevated because people are fearful and they’re not spending and they’re saving because they’re bunkering down? Is the savings rate because people are essentially locked down in their homes and therefore their ability to spend… is impaired?” he said during an SG Hiscock media briefing.
“Or is the savings rate essentially this high because people just don’t have the need to spend?”
Importantly, consumer confidence is the highest it has been in seven years, the manager commented.
“People are not saving because they’re fearful, not at all. People are saving because they’re not out and about as much, and they’re not needing to spend as much, so they’ve built up this chest of savings,” he said.
The Australian retail sector is expected to benefit from consumers’ improved balance sheets as Christmas approaches, with sentiment rising on the news of a vaccine and Australia enjoying low case numbers and eased restrictions.
Instead of remaining cautious around going out in public, Mr Berry believes consumers “want to get out”, having been deprived of experiences, with pent-up demand. He referred to a rise in retail foot traffic through the Black Friday sales period.
“The market has been extrapolating the stay at home scenario… We’re at the other side of that see-saw. Australia’s position has significantly improved post-lockdown and now we’ve had the vaccine arrive as well,” he said.
“It’s a wake up call for the market and now it’s just getting started.”
Some changes will remain in the aftermath of the COVID crisis. People are expected to work from home a little more and shop online more, but Mr Berry insisted that for the “main part, there will be a return to normality”.
The outlook has improved for office, retail and the household sectors, but investors should exercise caution around logistics.
“So the question is, do you position for the recovery or do you position for the staying at home forever? Our view is more to position for the recovery,” he said.
“How best to do that is to invest in those stocks which are in discount, but ultimately very high quality assets.”
In equities, SG Hiscock has also titled its portfolio towards quality cyclical companies, that are tipped to benefit from a recovery. As outlined by Australian equities portfolio manager Hamish Tadgell, this has included energy companies such as Woodside Petroleum and Cooper Energy, as well as the banking segment.
SG Hiscock has increased its weighting towards banks to its highest in 10 years.
“Nonetheless, there remains uncertainty around how long we will have to live with the virus and the timing of a vaccine, and there is a need to remain vigilant,” Mr Tagdell said.
“There will no doubt be bumps in the road with the manufacturing and distribution of the vaccine and path of earnings recovery. At this time, more than ever, a disciplined and active investment approach is required.”
The US election has also been an important catalyst, but the firm is watching the run-off elections in Georgia. If the Democrats win, the party would seize control of the Senate, raising concerns around less “market-friendly regulatory reform”.
