Skip to main content

Tag: Coronavirus

Coronavirus Crisis, COVID 19 in 2020

2021 road to recovery

Review of 2020 and the 2021 road to recovery

Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on Review of 2020 and the 2021 road to recovery

2021 road to recovery

  • For 2021, the combination of massive policy stimulus and the prospect of vaccines allowing a return to something more normal by end 2021/early 2022 should see a decent rebound in economic growth.
  • This plus lower interest rates is likely to see solid returns from share markets but poor returns from bonds. Australian shares are likely to be relative outperformers.
  • The main things to keep an eye on are: coronavirus and vaccines; China tensions; inflation; as well as the hit to immigration in Australia and its impact on home prices.

    • 2020 – not what it was supposed to be

    2020 didn’t exactly turn out the way I or many expected a year ago. For Australia, the year started badly as severe drought had given way to the worst bushfires on record. But just as the bushfires were receding it gave way to the coronavirus pandemic. Every year has a big surprise but they don’t usually have such a profound impact as the coronavirus pandemic has.

    It caused a massive health crisis claiming at least 1.5 million lives, with many countries seeing at least two waves.
    It shut down big chunks of economies, driving the biggest fall in economic activity since the end of WW2 if not the Great Depression, with major economies seeing peak to trough falls in GDP of 10% to 20% and the Australian economy contracting by 7.3%. This saw unemployment surge and inflation plunge.

    Share market prices collapsed 35% in a matter of days, commodity prices collapsed with the oil price going negative at one point as investors sought out safe havens like bonds.
    And it, or rather the poor management of it, lost President Trump the US election (even though he denies losing).

    The pandemic also increased tensions with China and is likely to leave a longer-term mark with a further set back to globalisation, more social tensions, bigger government and public debt, the risk that massive money printing eventually results in higher inflation, faster structural change due to an accelerated embrace of technology, more consumer caution and a lower population in Australia due to the hit to immigration.

    However, while 2020 is a year many of us would prefer to forget and coronavirus continues to wreak havoc in much of the world, the end result for economies hasn’t been as bad as had been feared back in March. This reflected a combination of:

    • An unprecedented and rapid fiscal stimulus that protected businesses, jobs and incomes;
    • Debt forbearance schemes that headed off defaults;
    • Massive monetary stimulus that saw interest rates plunge
    • Social distancing which has helped contain the virus enabling some reopening – albeit better in some countries (eg, Asia, Australia and New Zealand) than others.

    This enabled economic activity to bounce back fast through the second half as restrictions eased, even though it wasn’t always smooth (eg, in Victoria or in Europe and the US) and we still have a way to go to full recovery. As a result, investment markets also performed far better than feared.

    spf ed20 investment returns for major classes

    Source: Thomson Reuters, Morningstar, REIA, AMP Capital

    While share markets plunged in March during the early stages of the pandemic, they then rebounded thanks to massive fiscal stimulus and reopening, low interest rates and bond yields that made shares cheap as well as good news on vaccines that enabled investors to look forward to further recovery in 2021. 

    This all drove solid returns in global shares with Asian and US shares (which were boosted by a relatively a high exposure to IT and initially health care stocks which benefitted from the pandemic) outperforming. The more cyclical Japanese and European markets underperformed.

    Real estate investment trusts had negative returns as a result of a hit to property space demand and rents. 
    It was the same story for unlisted commercial property and infrastructure, although industrial property did well.

    Home prices fell 3% around mid-year but then started to recover as low interest rates, government support measures and reopening swamped the hit to immigration, weak rental markets and higher unemployment. Houses, outer suburbs & regions benefitted from “escape from the city.”

    Cash and bank term deposit returns were poor as the RBA cut the cash rate to just 0.1%. 

    2021 – recovery

    Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery. This in turn will have a profound effect on investment markets.

    There are four reasons for optimism:

    First, massive fiscal and monetary stimulus is still feeding through economies with very high saving rates indicating pent up demand that can be spent once confidence improves, which will also help offset the wind down of some support measures like JobKeeper in Australia.

    Second, the news on vaccines is positive. While uncertainties remain, by end 2021 or early 2022 there is a good chance the world will be approaching a degree of herd immunity.

    Third, a new US president in Joe Biden should usher in a period of more stable and expert based policy making in what is still the world’s biggest economy. In particular, it will likely head off a return to trade wars that could have wreaked havoc in 2021. A more diplomatic US approach to resolving differences with China could also help Australia move down a path to resolving its own differences with China.

    Finally, Australia along with NZ has navigated 2020 remarkably well, controlling coronavirus far better than most comparable countries and seeing its politicians and institutions work well together. It also led to structural reforms that may help future growth (eg, property tax reform in NSW, IR reform nationally).

    The combination of vaccines, policy stimulus and pent up demand is expected to see a supercharged cyclical rebound in global GDP of around 5.2% and 4.5% in Australia in 2021. This is likely to see strong double-digit rebounds in profit growth.

    Inflation is likely to remain weak, reflecting still high levels of spare capacity which in turn means interest rates will remain low. While this is not good for those relying solely on bank interest, it benefits the household sector as a whole (with debt exceeding bank deposits) & corporates, eases the servicing of high public debt levels and makes shares cheap. So, in a way we remain in the sweet spot of the investment cycle with improving growth but low rates. In Australia, the cash rate is expected to end 2021 at 0.1% but there is still a risk of more quantitative easing.

    Implications for investors

    Shares are volatile. Volatility is normal and there’s always a possibility of a short-term correction after having ran up so hard in recent months since the collapse in February and 2021 is likely to see a few rough patches along the way (much like we saw in 2010 after the recovery from the GFC), but looking through the inevitable short-term noise, the combination of improving global growth and low interest rates positions growth assets like shares and property well for 2021.

    Global shares are expected to return around 8%, but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries. 

    Australian shares are also likely to be relative outperformers helped by better virus control, enabling a stronger recovery in the near term, stronger stimulus, sectors like resources, industrials and financials benefitting from the rebound in growth.

    Income investors like retirees will continue to drive a search for quality yield, mainly from the share market as dividends are increased resulting in a 4.4% grossed up dividend yield.

    Australian shares still offer yeild

    Source: Bloomberg, AMP Capital

    Ultra-low yields & a capital loss from a 0.5-0.75% or so rise in yields are likely to result in negative returns from bonds.

    Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield but the hit to space demand and hence rents from the virus will continue to weigh on near term returns.

    Australian home prices are being boosted by record low mortgage rates, government home buyer incentives, income support measures and bank payment holidays but high unemployment, a stop to immigration and weak rental markets will likely weigh on inner city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will see stronger gains in 2021.

    Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%.

    What to watch?

    The main things to keep an eye on in 2021 are as follows:

    • Coronavirus and vaccines – problems with vaccines or their deployment could result in ongoing waves of new coronavirus cases & slower recovery than we are assuming. 
    • US politics – a Democrat victory in Georgia’s January 5 US senate elections would risk more of a leftward tilt under Biden, although conservative Democrat senators will limit this. Trump could also try to throw a spanner in the works. 
    • China tensions – we expect a shift to a diplomatic approach here but there is a risk of misjudgement on either side which could start to slow our longer-term economic growth rate.
    • Inflation – we are assuming it remains weak but if it rebounds faster than expected it will mean faster increases in bond yields and downward pressure on asset valuations.
    • The hit to immigration in Australia – 700,000 less immigrants out to mid-2023 will continue to impact on inner city Sydney and Melbourne property prices and rental incomes.

    Concluding Comment

    In closing, uncertainty about the future will never go away. Uncertainty is, in fact, the only certainty we have. Although 2020 was difficult due to crisis which directly impacted literally everyone, the fundamentals of free market and the adaptability of human nature prevailed.

    Our clients have prospered from sticking to their financial plans and listening to our guidance. Staying the course can be difficult sometimes but it’s during the tough years like these (COVID-19, GFC, etc.) when we have proven that what we do is right – your portfolios are well diversified and well managed and if we don’t abandon them, we are well positioned to benefit, regardless of what happens. It’s the reason you hired us – to be a guide in the ever-changing landscape and provide you with what we call ‘The Value of Advice’.

    After 32 years of running Sydney Financial Planning, it’s what gets me out of the bed every morning – knowing that we are here for you. Thank you for being our clients, it is a privilege to serve you.

    Hope you all have Merry Christmas with your families and friends and here’s to the next adventure in 2021!

     

    Bill and the team of Sydney Financial Planning.

     

    Need expert advice on the best investment strategies for your portfolio?

    Speak with one of our experienced Financial Planners, we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

     

    This article was prepared by William Bracey and Dr Shane Oliver. Dr Shane Oliver who provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

    Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    COVID-19 and the Australian economy

    The long-term impacts of COVID-19 on the Australian economy

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on The long-term impacts of COVID-19 on the Australian economy

    COVID-19 and the Australian economy

    While we remain in the first phases of economic shock, it’s fair to say that the effects of COVID-19 will be widespread and felt for a long time to come.

    Workforce and industry

    COVID-19 has had a heavy impact on Australia’s employment landscape. Recent figures indicate a7.4%unemployment rate, and while job losses are hitting families hard in the short-term, these workforce shifts are also shaping how industry and employment will look in the future.

    Certain sectors, like aviation and tourism, might never be the same again. Increasingly, organisations are being forced to make structural changes – operations are being moved online, and businesses are automating processes typically performed by humans. Now that these difficult changes have been made, it’s likely some of them will become permanent even after COVID. This is particularly true in the hardest-hit sectors of hospitality and retail, where businesses will need to transform to survive, changing the landscape of these industries for the long-term.

    Globalisation, trade and population growth

    Short-term travel restrictions and disruption to the global supply chain have driven governments around the world to reassess their stance on globalisation. Production of some goods will be moved onshore, particularly those that are deemed of national significance like healthcare products, and there will be more slack built into supply chains to account for reduced reliability. Most significantly, Australia will feel the impact of a vast reduction in migration, with the Prime Minister estimating that 34,000 migrants will arrive in the country in the year to come – a staggering drop from the 533,500 who arrived in 2019. A lack of migrants over the longer-term will result in population decline and a reduced workforce that could have an enduring economic impact on the healthcare, tourism, housing, and agricultural sectors.

    Education and skills

    The pandemic will have a lasting effect on a generation of learners. International students aren’t arriving, domestic students are learning over Zoom and tertiary institutions are losing money and staff at a rapid rate. A crisis in higher education could have long-term impacts on thestructure of the sector and some institutions may not survive. But it isn’t all necessarily bad news. Rapid, innovative training courses could begin to take the place of the traditional Bachelor’sdegree, as school-leavers get the skills they need to enter a fast-evolving workforce and keep Australia competitive in key industry sectors.

    Australia is going through a difficult time, but it’s important that we keep our attention focused on long-term growth and recovery.

     

    Do you need to discuss how best to set yourself up for the future?

    Why not book an appointment with one of our planners to review your situation, contact us on 02 9328 0876.

     

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    Photo by Engin Akyurt on Unsplash

     

     

    2019-20 Investment market reflections

    2019-20 saw poor returns

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on 2019-20 saw poor returns

    2019-20 Investment market reflections

    • Key lessons for investors from the last financial year were to: maintain a well-diversified portfolio; timing market moves is hard; beware the crowd; turn down the noise; and don’t fight the Fed.
    • With coronavirus risks still high, investment markets may see more short-term volatility. But over the next 12 months returns from a well-diversified portfolio are likely to be constrained, but okay.

    Introduction

    The past financial year was poor for investors as coronavirus knocked economies into what is likely to be their biggest hit since the 1930s. Shares were hit hard, but the blow was softened by a strong rebound in the June quarter. This note reviews the last financial year and takes a look at the outlook.

    Pre and post covid

    The past financial year can effectively be divided into two halves. The period from July last year into early this year saw generally strong returns from shares and growth assets, as fear of recession faded helped by central bank easing and a truce in the US/China trade war and gave way to expectations of some improvement in global economic growth. Despite devastating bushfires and a subdued growth outlook even the Australian share market made it to a record high in February. Against this backdrop, returns from government bonds were subdued.

    This now seems like it was a different world as it all started to fade and ultimately reverse as the coronavirus epidemic started to become a problem in China in January. Initially it was hoped it would be contained to China (which successfully controlled it allowing a reopening of its economy from March) but from late February the number of cases escalated in Europe then the US, Australia and ultimately emerging countries, resulting in severe lockdowns driving sharp economic contractions in economic activity. So, between 20th February and 23rd March share markets collapsed by around 35% dragging down commodity prices. This also saw the $US surge and the Australian dollar plunge to around $US0.55.

    However, from late March shares staged a rebound driven by policy stimulus, a decline in new covid cases, economic reopening and a rebound in economic data. From their March lows to June highs global shares rose 40% & Australian shares rose 35% and commodity prices and the $A also rebounded.

    So, despite this wild ride, for the financial year as a whole global shares returned 5.2% in Australian dollar terms. This was led by the US share market which outperformed due to a heavy tech and health care exposure, a relatively low exposure to cyclical shares and massive Fed quantitative easing. Australian shares didn’t fare so well & still lost 7.7% for the financial year.

    Cash and bank deposits had very low returns as the RBA cut the cash rate to 0.25% in March. But bonds had reasonable returns as plunging yields provided capital growth for investors. Despite the plunge in interest rates and bond yields, listed property saw double digit losses as the coronavirus driven slump in economic activity pushed up vacancies and depressed rents in retail and office properties. Returns on airports were similarly depressed weighing on direct infrastructure returns.

    This all saw small negative returns for balanced growth superannuation funds of around -1.5% after fees and taxes. Of course, it would have been much worse were it not for the June quarter rebound in shares. The hit to super returns also followed several years of strong returns and the five-year average is just over 5% which is not so bad given (pre tax) bank deposit rates averaged around 2% and inflation averaged 1.5%.

    2019-20 major asset class returns

    Source: Thomson Reuters, AMP Capital

    Like shares, Australian residential property had a roller coaster ride – first rising 10% on rate cuts and the Federal election before starting to slow as coronavirus hit.

    Key lessons for investors from the last financial year

    These include:

    • Maintain a well-diversified portfolio – while shares and listed property had a rough ride, bonds and exposure to global shares and foreign currency provided some stability. 
    • Timing markets is hard – while it always looks easy in hindsight, getting out in February at the top and then getting back in March at the low would have been very hard to time.
    • Beware the crowd at extremes – as is often the case shares hit bottom in March at a time of extreme investor pessimism.
    • Turn down the noise – the noise around coronavirus is at fever pitch making it very hard to maintain focus on long term investing, so the best thing is to turn it down a notch. 
    • Don’t fight the Fed – despite near zero interest rates and high public debt levels, policy stimulus can still be applied on a massive scale and still impacts investment markets.

    The negatives

    There are a bunch of threats which are likely to lead to a further correction in shares in the short term, ongoing bouts of volatility and constrained returns. Here are the big ones.

    • First, while some countries have got new coronavirus cases well down, it’s still on the rise globally particularly in emerging countries and the US and Victoria have seen a resurgence in cases. This is threatening a return to economically debilitating country wide lockdowns (as opposed to targeted measures). Even partial lockdowns will slow the recovery – eg, our rough estimate is that the new six-week lockdown of Melbourne, which accounts for about 20% of Australian GDP will knock nearly 1% off Australian GDP this quarter, which will slow the recovery (but not derail it as it should be offset by growth in other states). 
    • Second, the shutdowns will leave lasting collateral damage in terms of bankruptcies and higher unemployment as the embrace of technology has been sped up, companies cut costs and skills atrophy, all of which will weigh on growth.
    • Third, in Australia the main collateral risk is that the combination of high unemployment, a collapse in underlying housing demand on the back of a plunge in immigration and a depressed rental market drive a sharp collapse in home prices triggering negative wealth effects.
    • Fourth, the run up to the US election has the potential to drive increased share market volatility if it looks increasingly likely that Biden will win and raise taxes, and the risk is probably greater if President Trump decides he has nothing to lose and ramps up tensions with China and maybe Europe. With betting markets favouring a clean sweep by the Democrats some of the former is probably already priced, but an intensification of trade wars is probably not.
    • Finally, shares are expensive on traditional metrics like PEs.

    The positives

    However, there are a bunch of positives providing an offset.

    • First, several Asian countries have shown its possible to control the virus – notably China, South Korea, Taiwan and Japan. Maybe the SARS experience helps along with the culture of wearing masks. Surely, we can learn from them.
    • Second, progress is continuing to be made in terms of vaccines and treatments for coronavirus. I am a bit sceptical about a vaccine, but the latter may be contributing to lower death rates. If deaths remain low compared to the first wave there is less risk of a return to hard lockdowns (Victoria excepted!) and less self-isolation.
    • Third, policy makers remain committed to do whatever they can to support businesses, incomes and jobs with record levels of fiscal stimulus relative to GDP and massive monetary stimulus. This is different to normal recessions where it takes longer for policy makers to swing into action. To this end policy stimulus will be extended in the US and in Australia (with the Treasurer talking about another phase of income support and possibly bringing forward tax cuts). 
    • Fourth, a range of economic indicators have seen a Deep V rebound from shutdown lows starting in China and then in developed countries, suggesting significant pent up demand. This is most evident in business conditions PMIs but also in retail sales. On balance we see a gradual bumpy economic recovery from here. Australian GDP is expected to contract -4.5% this year and grow 4% next year.

    2019 20 global manufactiring and service pmi

    Source: Bloomberg, AMP Capital

    019 20 aus shares yeild vs bank deposits

    Source: RBA; AMP Capital

    • Finally, the plunge in interest rates and bond yields have increased the present value of shares and other growth assets, which explains why price to earnings multiples are so high. Or looked at another way, shares remain attractive despite lower earnings and dividends because the alternatives like bank deposit rates are even less attractive.

    What about the return outlook?

    With coronavirus risks still high, investment markets may see more volatility. But over the next 12 months returns from a well-diversified portfolio are likely to be constrained but okay.

    • After a strong rally from March lows shares remain vulnerable to short term setbacks given uncertainties around coronavirus and US/China tensions. But on a 6 to 12-month view shares are expected to see reasonable returns helped by a pick-up in economic activity & massive policy stimulus. 
    • Cash and bank deposit returns are likely to be poor at less than 1% as the RBA is expected to keep the cash rate at 0.25%. Investors still need to think about what they really want: if it’s capital stability then stick with cash, but if it’s a decent income flow then consider the alternatives. 
    • Low starting point yields are likely to result in low returns from bonds once the dust settles from coronavirus.
    • Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield, but the hit to economic activity and hence rents from the virus will weigh heavily on near term returns. 
    • Home prices are expected to fall by around 5 to 10% into next year as higher unemployment, a stop to immigration and the weak rental market impact.
    • Although the $A is vulnerable to bouts of uncertainty about the global recovery and US/China tensions, a continuing rising trend is likely if the threat from coronavirus recedes.

    Loans and guarantees are helpful but they leave businesses more indebted, whereas actual fiscal stimulus provides a direct boost. So actual fiscal support is a better measure and on this front Australia at 10.6% of GDP has provided by far the strongest fiscal stimulus of G20 countries. What’s more, Australia’s centrepiece JobKeeper wage subsidy is superior to approaches taken by many other countries as it keeps people “employed”, minimises confidence zapping negative headlines around unemployment, preserves the employer/employee relationship, keeps workers getting paid and provides a subsidy to struggling businesses. Unemployment is likely to rise to around 10% which is bad, but its far better than the 15% that would likely occur in the absence of JobKeeper or 20% or so unemployment in the US.

    Things to keep an eye on

    The key things to keep an eye on are: coronavirus hospitalisations and deaths, as a guide to the degree of isolation; global business conditions PMIs and unemployment; US election prospects; and Australian house prices.

     

     

    Get help making sure your investment strategies that can ride the storm…

    Speak with one of our Financial Planners, we’re here to help, either book a virtual meeting or get in contact with us on 02 9328 0876.

     

     

    Article by AMP Capital

     

    This article was prepared by Dr Shane Oliver. Dr Shane Oliver who provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

    Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    Australia the lucky country

    The lucky country…

    Written by Sydney Financial Planning on . Posted in Coronavirus Crisis. No Comments on The lucky country…

    Australia the lucky country

  • If, as a we expect, this results in a relatively stronger recovery for the Australian economy, then Australian assets should benefit relative to global assets.

    • Introduction

    Back in January when the bushfires were raging, I feared Australia’s luck had ran out. But right now, I thank god I live in The Lucky Country! Donald Horne’s original conception of the term in the 1964 book of the same name about Australia being run by “second rate people who share its luck” always seemed a bit too negative to me. Sometimes it may seem that way for a patch and yes mistakes are made, but when it really matters, I reckon we are led pretty well. Particularly in times of crisis. Think the 1980s when Hawke and Keating opened up and modernised the economy. Or through the GFC when a rapid policy response was a big reason Australia avoided recession. The response to the current crisis will likely also go down as a time when Australia rose to the occasion.

    Of course, we are still not out of the woods on coronavirus and there are some bad stats ahead on the economy. This is indicated by our Australian Economic Activity Tracker which is based on high frequency alternative data and is running down 40% on year ago levels, reflecting a preponderance of components most affected by the shutdown.

    Australian economic activity tracker

    Source: Bloomberg, AMP Capital

    The good news is that it is up from its early April low, but there is still bad news ahead of us in the official statistics. Unemployment likely spiked to around 10% last month which is the highest since the 20% seen during the Great Depression and official data to be released in the months ahead is likely to reflect a 10 to 15% contraction in the economy in the first half of the year, all of which risks further depressing confidence.

    But three things suggest Australia looks likely to come through this period of global misery relatively well compared to many other countries and this may mean the Australian economy contracts less and rebounds faster, ultimately supporting Australian asset classes relative to other countries’ assets.

    First, Australia has performed better than many countries in controlling coronavirus

    While things were bleak in late March, Australia’s success in “controlling” coronavirus (touch wood) stands out globally. After a rapid escalation in new cases, Australia imposed a shutdown around 22 March. New cases peaked in late March at over 500 a day and have since declined to less than 30 a day, albeit with a few clusters still causing problems. New cases may have peaked in the US but are still averaging around 29,000 per day.

    Comparing OECD countries in how they are managing the coronavirus outbreak (based on recovery rates, active cases per capita, total cases per capita adjusted for the number of days since the first case and testing per capita) Australia ranks first, with NZ 2nd (guess where your next overseas holiday might be!) compared to Italy at 28th, the UK at 31st, Sweden at 36th and the US the worst performer in the OECD at 37th.

    Comparing OECD countries

    Source:Worldometer, AMP Capital

    Better weather, less congested living, a younger population and luck may have played a role, but the big driver looks to have been a public health response driven by expert medical advice as opposed to bravado or crackpot theories. And this has been backed up by Australians pulling together to do the right thing. By contrast Europe and the US have been marked by a slower response (eg lockdowns in Italy and Spain did not occur until new cases per million people were around 30, compared to around 12 in Australia). And Australia has achieved a similar virus outcome with a less stringent lockdown to New Zealand.

    Australia’s better record in containing the virus means two things. First, it has kept pressure off the health system so those who need hospitalisation can get it. As a result, Australia has managed to do a much better job of saving its own people than many other countries. Deaths per million people are around 3.9 in Australia, compared to 84 in Germany, 221 in the US, 280 in Sweden, 443 in the UK and 485 in Italy – that’s 124 times worse than Australia’s death rate! The value of saved lives swamps the cost to the economy from the shutdown.

    Coronavirus per million

    Source: Worldometer, AMP Capital

    It also provides Australia more scope to open the economy sooner and with greater confidence that a “second wave” of cases will be avoided – in contrast to the US where there is no clear downtrend in new cases. Indications from the Government are that a phased easing of the shutdown looks on track to start this month with most businesses running again by July.

    Second, Australia has seen a superior policy response

    Australian fiscal response g20

    Source: IMF, AMP Capital

    The global government policy response to the economic threat posed by coronavirus shutdowns has been huge. See the next chart. However, in many countries it includes a large element of loans and debt guarantees as opposed to actual fiscal stimulus in the form of spending or tax cuts. For example, providing a loan (or a guarantee to enable a loan) to a business to help it survive the shutdown versus providing it with a wage subsidy.

    Loans and guarantees are helpful but they leave businesses more indebted, whereas actual fiscal stimulus provides a direct boost. So actual fiscal support is a better measure and on this front Australia at 10.6% of GDP has provided by far the strongest fiscal stimulus of G20 countries. What’s more, Australia’s centrepiece JobKeeper wage subsidy is superior to approaches taken by many other countries as it keeps people “employed”, minimises confidence zapping negative headlines around unemployment, preserves the employer/employee relationship, keeps workers getting paid and provides a subsidy to struggling businesses. Unemployment is likely to rise to around 10% which is bad, but its far better than the 15% that would likely occur in the absence of JobKeeper or 20% or so unemployment in the US.

    Third, Australia’s major trading partner is 2-3 months ahead of the rest of the world

    Finally, we may benefit from our biggest export market – China, which takes a third of our exports – being ahead of the global recovery curve by around 2-3 months and focused on infrastructure spending. This explains why prices for our key export – iron ore – are holding up relatively well compared to say the price of oil (of which we are a net importer).

    Implications for the Australian economy

    If, as appears likely, a phased easing of the lockdown starts this month, then April should prove to be the low point in economic activity and growth should return to the economy in the second half. This does not mean that things will quickly bounce back to “normal” – the easing of the lockdown will likely be gradual to minimise the risk of a “second wave”, some businesses will not reopen, uncertainty will linger, debt levels will be higher and business models will have to adapt to different ways of doing things. This may mean returning to the office on a rotational basis and shops & restaurants reopening but with distancing rules. Domestic travel may be back withing a few months, but international travel looks unlikely in the absence of a vaccine until next year (except to NZ). But it will still see a return to growth, albeit it may not be until end next year before economic activity returns to pre-virus levels.

    The combination of better success in controlling the virus with less risk of a second wave, better protection of the economy with a stronger policy response and Australia’s exposure to China make it likely that the Australian economy will contract less and recover faster than other comparable countries.

    While many fret that without tourism and immigration Australia can’t recover, this is not true. The travel ban has only accounted for a small part of the hit to the economy. Australia actually has a tourism trade deficit of 1% of GDP (we lose more from Australians going overseas than we gain from foreigners coming here) so a ban on international travel will actually boost GDP. However, we do have a 2% trade surplus in education, and this would be lost if foreign students can’t come. Similarly, immigration contributes just less than 1% to economic growth each year in Australia. However, this is all dwarfed by the 10 to 15% hit to economic activity which has mostly come from the domestic shutdown. And it could be argued that a workable testing and quarantine requirement could be introduced to allow students and immigrants to return on a 6-9 month timeframe.

    Risks to watch

    The main risks to watch for are: a “second wave” of coronavirus cases driving a new shutdown beyond the six month protection out to September provided by JobKeeper, increased JobSeeker and the bank debt payment holiday; the lockdown triggering a house price crash resulting in severe second round effects on the Australian economy – this is probably a much greater risk if the lockdown continues beyond September; and political tensions around the origin of Covid 19 damaging Australia’s trade relationship with China in some way.

    Concluding Comment

    It’s a great time to live in Australia. If we can control the spread of the virus, get our economy going before other trade competitors, and get as many people as we can back to work – our economy should right itself. The Chinese economy is recovering, and we can also benefit from that as we export our raw materials to China. Some positive news finally!

     

    Bill and the team at SFP.

     

     

    Get help making sure your investment strategies that can ride the storm…

    Speak with one of our Financial Planners, we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

     

     

    This article was prepared by Dr Shane Oliver. Dr Shane Oliver who provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

    Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    How deep will Australia’s recession be?

    How deep will Australia’s recession be…

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on How deep will Australia’s recession be…

    How deep will Australia’s recession be?

    Introduction

    This is our 4th update since the COVID-19 crisis started. The feedback we are getting is that our SFP insights have been very welcomed, and they have represented a voice of reason in an ocean of fear. Sydney Financial Planning has been operating for 31 years. In 1991 during the recession we had to have, we were there to help guide our clients through this tough period. In 1991, 2001, 2008 and again today in 2020 when the financial markets fell dramatically, we continue to be here for you, guiding and advising you through a rough patch.

    Is this normal?

    Looking forward, is this just a normal recession we will go through or is it worse and deeper? Or is it short-lived? Will we get back to normal quickly? When will the financial markets return to normal?

    At the time of penning this article, the Australian Share Market has staged a
    staggering 20% recovery. So, congratulations to all our clients who did not panic. Congratulations to our clients who took our advice, and took advantage of this fantastic opportunity to buy in at a 40% discount.

    A great proportion of the working population has never known a recession in Australia, and others will be haunted by the last in the early 1990s. This time around, I think Australia is in for a different experience to what we’ve seen and known before – and that’s not entirely a bad thing.

    The Australian government has, rightly, sacrificed economic activity in the name of health in response to the COVID-19 crisis. It’s not alone in this, as you’d well know, major economies worldwide have done and are doing the same thing, albeit in different ways.

    An unfortunate victim in this is Australia’s almost 30-year run of economic growth as we are experiencing our first recession since 1991. The March quarter is most likely going to be negative, and the June quarter will see a big hit to economic activity thanks to the
    virus-driven shutdowns, possibly in the order of 10 percent. In other words, our economy will shrink considerably as this virus runs its course.

    Again, Australia won’t be alone in this, a global recession is likely as major powerhouses like the US and China factor in the huge economic hit of social distancing, isolation measures, and a virtual shutdown of regular activities, businesses, and services that are not essential.

    How will this affect me?

    There is a range of factors Australians will feel as we move through the recession period, and a big one will be how tough the jobs market is. There will be much higher unemployment, it will be harder to switch jobs, and it’s reasonable to expect more redundancies and terminations as the crisis continues.

    This leads to a loss in income and falling wages, which reduces the spending power of affected Australians. Compounding that, even for those who are holding on to their jobs, uncertainty will rise – people worry about the future, they worry about their income, they worry about their employment prospects. That will impact spending patterns, and how much people are willing to part with beyond the essentials.

    It’s worth pointing out some of the potential opportunities for our investors who are prepared to take a long-term view. For one, interest rates will be lower, the official cash rate is currently sitting at the all-time low of 0.25%. This will mean it’s cheaper to service a mortgage.

    The residential property market is also likely to take a hit, which could provide lower entry points for people who have struggled – particularly in cities like Sydney and Melbourne – with affordability. The same logic applies to shares. Although the market is currently more volatile, for those with a long-term outlook, there are opportunities to find value at a lower price point. This especially applies to all those reinvested dividends, if you’re in the accumulation stage.

    Finally, what we think will be different about the recession before us and those Australia has seen before, is that the current crisis is not the result of a bust after a boom. This is an enforced shutdown and a significant disruption – it was not caused by anything fundamental in the Australian economy. Because of that, we are positive that once the virus is under control, we can recover and reach a more normal functioning in a quicker way than we have before. Adding confidence to this is that government and financial support programs – notably the wage subsidy and debt payment holidays – have been applied early and aggressively and should help protect many businesses and individuals so that the economy can bounce back reasonably quickly once the virus is under control.

    Stay the course and keep healthy. This too shall pass.

     

    Advice team of Sydney Financial Planning

     

    Remember we are available to help you during this unprecedented time…

    If you have ANY questions please get in touch to speak with one of our Financial Planners we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

     

    Article by Michal Bodi | Senior Financial Planner

     

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    Photo by Casey Horner on Unsplash

     

    Coronavirus - Recession, Depression or Economic Hit?

    Is coronavirus driving a recession, depression or an economic hit like no other?

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on Is coronavirus driving a recession, depression or an economic hit like no other?

    Coronavirus - Recession, Depression or Economic Hit?

  • There are big differences between the current disruption to economic activity – which could be very deep in the short term – and past recessions and depressions.

    • Introduction

    Global and Australian shares have fallen well beyond the 20% decline commonly used to delineate a bear market. From their highs to their recent lows major share markets have had roughly 35% falls as investors have moved to factor in a big hit to growth from coronavirus shutdowns.

    Recession now looks inevitable and they tend to be associated with deep and long bear markets, but now there is even talk of depression suggesting an even deeper bear market. In reality, there are big differences now compared to past recessions and the Great Depression, so it really looks like an economic hit like no other with very different implications for the bear market in shares. But let’s first look at past bear markets as they provide some lessons for investors regardless of the cause.

    The two bears – gummy & grizzly

    There are 2 types of bear markets in shares:

    • “gummy” bear markets with falls around 20% meeting the technical definition many apply for a bear market but where a year after falling 20% the market is up (like in 1998 in the US, 2011 and 2015-16 for Australian & global shares); and
    • “grizzly” bear markets where falls are a lot deeper and usually longer lived (like in 1973-74, US and global shares through the tech wreck or the GFC).

    I can’t claim the terms “gummy bear” and “grizzly bear” as I first saw them applied by stockbroker Credit Suisse a few years ago. But they are a good way to conceptualise bear markets. Grizzly bears maul investors but gummy bears eventually leave a nicer taste (like the lollies!). The next table takes a closer look at bear markets. It shows conventionally defined bear markets in Australian shares since 1900 – where a bear market is a 20% decline that is not fully reversed within 12 months. The first column shows bear markets, the second shows the duration of their falls and the third shows the size of the falls. The fourth shows the percentage change in share prices 12 months after the initial 20% decline. The final column shows the size of the rebound over the first 12 months from the low.

    bear markets au shares since 1900

    Based on the All Ords. I have defined a bear market as a 20% or greater fall in shares that is not fully reversed within 12 months. Source: Global Financial Data, Bloomberg, AMP Capital

    Since 1900 there have been 12 gummy bear markets (in black) and six grizzly bears (in red). Several points stand out.

    • First, gummy bear markets tend to be shorter & see smaller declines around 26% compared to 46% for the grizzly bears.
    • Second, the average rally over 12 months after the initial 20% fall is 15% for the gummy bear markets but it’s a 23% decline for the grizzly bear markets.
    • Third, the deeper grizzly bear markets are invariably associated with recession, whereas the milder gummy bear markets including the 1987 share market crash tend not to be. All the six grizzly bear markets, excepting that of 1951-52, saw either a US or Australian recession or both whereas less than half of the gummy bear markets saw recession. It’s also the case for the US share market.
    • Finally, once the bear market ends the rebound is strong with an average gain of 29%. Trying to time this is hard with many who get out on the way down finding they don’t get back in until the market has risen above where they sold!

    Recession versus depression or something else?

    So, one of the key messages from history is that if we have a recession then the bear market will likely be grizzly and severe with markets even lower than they are today in 12 months’ time. It’s not necessarily that simple though as the shock this time is very different to those seen in the past. But first the bad news. Recession now looks inevitable. There is now even talk of “depression”. While there is a huge unknown around how long it will take to control the virus and hence how long the shutdowns will last it is looking clear that the short term hit to GDP will be deeper than anything seen in the post WW2 period hence the increasing references to the pre-war depression:

    • Chinese business conditions PMIs for February fell an unprecedented 24 points due to shutdowns starting 23rd January. Consistent with this Chinese economic activity indicators are down 20% from levels a year ago. Chinese March quarter GDP could well be down 10% or so.
    • Business conditions PMIs for the US, Eurozone, Japan and Australia all plunged in March as lockdowns ramped up. The average decline for these countries composite business conditions PMIs was an unprecedented 12 pts. This takes them below levels seen in the GFC. And the shutdowns have only just started so further falls are likely in April. So like China, developed countries could conceivably see 10% or so falls in GDP centred around the June quarter.

    g3 bus conditions pmis

    Source: Bloomberg, AMP Capital

    impact to Australia GDP from covid19

    Source: ABS, AMP Capital

    • By way of example the next chart shows the industry make-up of the Australian economy. The shutdowns will see a large hit to roughly 25% of the Australian economy, particularly accommodation & culture, retailing & real estate.

    Big differences v past recessions and depressions

    But while the slump in economic activity may be deeper than anything seen in the post war period, depression may not be the best description. Most definitions of depression focus on it being over several years and seeing a very deep fall in GDP compared to a recession which is shorter and shallower. The current hit to economic activity may be very deep but it won’t necessarily be longer than past recessions. And there is good reason to believe that if the virus comes under control in the next 2-6 months and we minimize the collateral damage from the shutdowns that the hit to activity may be shorter. There are big differences between the current situation and that of past recessions and Great Depression of the 1930s:

    • First, recessions and The Great Depression (which saw GDP contract by 36% over 4 years and unemployment rise to 25% in the US and GDP fall by 9.4% in Australia with a rise in unemployment to 20%) were preceded by a period of excess in terms of investment, consumer discretionary spending, private debt growth and inflation that had to be unwound. This time around there has been no generalised period of excess and there has been no large-scale monetary tightening to bring on a downturn.
    • Second, monetary policy was tightened in the lead up to past recessions and in the early phase of the Great Depression whereas global monetary policy was eased last year and that easing has accelerated this month with rate cuts, a renewed ramp up of quantitative easing (QE) and central banks around the world establishing various ways to ensure credit flows to the economy. In the 1930s banks were simply allowed to fail. Now they are being supported by ultra-cheap funding. Much of this owes to the GFC experience which has made it easier for central banks to now ramp up QE and introduce support mechanisms.
    • Third, going into the Great Depression fiscal policy was tightened to balance budgets whereas in the last month we have seen massive and still growing global fiscal policy stimulus swamping that of the GFC. The latest US fiscal stimulus package alone is around 9% of US GDP.

    g20 countries fiscal thrust

    Source: IMF, AMP Capital

    • Fourth, there has been no trade war such as the Smoot-Hawley 20% tariffs on US imports that were met by global retaliation and saw global trade collapse in the 1930s.

    The bottom line is that while we may see the biggest hit to global and Australian GDP since the 1930s thanks to the shutdowns, there are big differences compared to the Depression suggesting that a long drawn out global downturn is not inevitable. Basically, it’s a disruption to normal activity caused by the need to stay at home. In fact, growth could rebound quickly once the virus is under control and policy stimulus impacts. Which in turn should benefit share markets and could see this latest bear market turn into a gummy bear market rather than a grizzly bear market. Of course, at this point we are still waiting for convincing evidence that markets have bottomed. And the key is that the number of new cases of coronavirus starts to slow and that collateral damage from the shutdowns are kept to a minimum.

    Closing Comment

    Wow a lot can change in a short period of time!

    In my last update I acknowledge there was a lot we did not know about this event and how it may play out. I finished with what we do know. After 31 years in Financial Planning
    I have learnt that numbers and history do not lie, that’s why we are obsessed with numbers and graphs to illustrate, our conclusions.

    I now ask you to re-read the table above, of what happened to the Australian Share market over the past 100 years when negative events occurred Globally, then look at the % gain in first 12 months after a low. Numbers don’t lie, nor history. Markets will recover, and when you’re sick you talk to the Medical Dr, when your financial affairs are sick talk to the Financial Dr. Now more than ever, you need to talk and review your situation to navigate out of here.

    Please feel free to call us, we’re here to help you.

    Bill and the team at SFP.

     

    Remember we are available to help you during this unprecedented time…

    If you have ANY please get in touch to speak with one of our Financial Planners we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

     

    Article by Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

     

    This article was prepared by Dr Shane Oliver. Dr Shane Oliver who provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

    Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    Federal Government Stimulus Package 2020

    Further Federal Government stimulus package announced

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on Further Federal Government stimulus package announced

    Federal Government Stimulus Package 2020

    The new measures include initiatives for individuals, households and businesses. Business initiatives include measures to both enhance cashflow and provide easier access to credit.
    Enabling legislation (where required) is expected to be introduced to Parliament in the sitting week commencing 23 March 2020.

    The proposed measures are briefly summarised below and will require passage of legislation and/or regulations to provide certainty as to the specifics of the proposals.

    Federal Budget: the Government has also announced that due to continuing uncertainty associated with the Coronavirus pandemic that the Federal Budget which was due to be handed down in May will be deferred until 6 October 2020.

    1. Measures to support individuals & households

    Proposed effective date: various, see below.

    Temporary early access to superannuation.

    Proposed effective date: 2019-20 and first quarter (approx.) 2020-21. Applications available from mid-April 2020.

    The Government recognises that immediate financial necessities may temporarily outweigh the stated purpose of superannuation as a retirement savings vehicle and will temporarily allow additional early access to super savings in prescribed circumstances.

    People who meet the below criteria will be allowed to access:

    • up to $10,000 of their super before 1 July 2020, and
    • up to an additional $10,000 in the three months starting from 1 July 2020 (timeframe is approximate and subject to legislation).

    Amounts released under these rules will be paid tax-free and will not affect Centrelink or DVA payments.

    Individuals eligible to apply for early release include:

    • Those who are unemployed; or
    • Those eligible to receive Jobseeker Payment, equivalent Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance; or

    Those who on or after 1 January 2020:

    • Were made redundant; or
    • Had their working hours reduced by 20% or more; or
    • As a sole trader, their business was suspended or turnover decreased by at least 20%.

    Those eligible must apply to the ATO through the MyGov website and must self-certify that they meet the above requirements. The ATO will then process the application and issue a Determination to the applicant and their super fund.

    The super fund will be able to then pay the applicant directly. Those eligible will only be allowed one withdrawal application in each period (i.e. cannot ‘top-up’ by making a second request if an original withdrawal for less than $10,000 was made).

    Applications for early release of super under this measure are expected to commence from mid-April 2020, approval and benefit payment time frames have not been announced at the time of writing.

    Early release of super benefits under this measure will also be available to members of SMSFs.

    Accessing super benefits in times of market down-turns is usually not recommended as it may crystallise losses. However members who experience loss of employment or a significant decrease in income may find this measure provides immediate financial relief and the basis to re-build.

    Further details of this measure are available in this fact sheet released by Treasury.

    Support for retirees – temporary reduction in minimum pension drawdown requirements

    Proposed effective date: Financial years 2019-20 and 2020-21.

    Similar to measures that applied following the 2008 Global Financial Crisis, the Government has proposed a 50% reduction in the minimum income drawings required from account based pensions and similar products for the 2019-20 and 2020-21 income years.

    This measure is designed to allow those whose circumstances permit to reduce income payments from their superannuation based pensions or income streams so as to minimise the need to sell down assets in depressed markets.

    Those who have already taken 50% or more of the required minimum payment in the 2019-20 financial year could contact their fund and cease any further payments until 30 June (subject to passage of regulations/legislation).

    This measure is not compulsory. Individuals who need the income or simply do not wish to reduce their income payments need not take action.

    Superannuation pensioners who are funding their income requirements from a cash account may also decide to take no action.

    Details of this measure are available in this Fact Sheet released by Treasury.

    Support for retirees and income support recipients – further reduction in deeming rates

    Proposed effective date: 1 May 2020.

    Adding to the 12 March 2020 announcement, the Government has announced a further 0.25% reduction in deeming rates.

    This will mean that part-rate pensioners and allowees will have less income assessed from their financial investments. If a recipient is income tested, the effect of the reduced deeming rate may result in an increase in social security entitlements.

    Any increase in the amount of income support received due to the reduction in deeming rates will commence to flow through to clients’ bank accounts from 1 May 2020.

    The following table illustrates the new deeming rates:

    Table 1: Reduction in deeming rates

    sfp e16 001 reduction in deeming rates

    Payments to income support recipients (households)

    Proposed effective date: various, see below.

    The Government will now provide two payments of $750 to eligible social security, veteran and other income support recipients (including concession card holders). Each $750 payment is a set amount, regardless that the recipient may have multiple eligibility (e.g. be an income support recipient and concession card holder).

    The first payment will be made to those receiving eligible income support or other benefits as at 12 March 2020, or those who have applied for a benefit as at that date (or up to 13 April 2020) and are subsequently approved.

    The second payment will be available to those who are eligible income support recipients or concession card holders as at 10 July 2020 and will be paid automatically from 13 July 2020. However, those who are receiving a payment that is eligible to receive the Coronavirus supplement (see below) will not receive this second $750 payment.

    Each eligible person in a household can receive the payment (e.g. a pensioner couple would receive a total of $1,500 in each round of payments).

    The payments will be exempt from tax and not included in the income test for social security, veteran or Farm Household Allowance payments.

    Eligible recipients must be residing in Australia. For the first payment, eligible benefits include:

    • Age Pension
    • Disability Support Pension
    • Pension Concession Card
    • Carer Payment and Allowance
    • Commonwealth Seniors Health Card
    • Veteran and War Widow(er) payments
    • Veteran Gold Card
    • Youth Allowance
    • Newstart Allowance/Jobseeker payment
    • Farm Household Allowance
    • Family Tax Benefit
    • Parenting Payment
    • Austudy
    • Partner Allowance

    The first payment will be made from 31 March 2020 with 90% of payments expected to be made by mid-April 2020.

    The payment will be made automatically to income support recipients. Those whose only qualifying benefit is a concession card will be contacted to confirm bank account details.

    In addition, eligibility criteria for benefits such as Sickness Allowance and Youth Allowance or other study related payments will be relaxed where the recipient can demonstrate inability to work or lack of compliance is due to Coronavirus related causes.

    To be eligible for the second payment the person must be residing in Australia and receiving one of the payments or concession cards listed above except for payments which receive the Coronavirus supplement (see below).

    These excluded payments include: Jobseeker Payment, equivalent Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance.

    The Government Fact Sheet on Payments to Households is available from Treasury.

    Enhanced income support for individuals

    Proposed effective date: 27 April 2020

    The Government is temporarily expanding eligibility to income support payments and establishing a new temporary ‘Coronavirus supplement’. The supplement will be paid at the fixed rate of $550 per fortnight for six months commencing 27 April 2020 and is in addition to existing income support payments.

    Those eligible for the supplement include existing and new recipients of the following payments:

    • The Jobseeker Payment (previously Newstart Allowance and other payments transitioning to the Jobseeker Payment);
    • Youth Allowance (YA) Jobseeker Payment;
    • Parenting Payment (partnered and single);
    • Farm Household Allowance; and
    • Special Benefit recipients.

    For the period of the Coronavirus supplement there will also be expanded access to the payments listed above.

    The Jobseeker payment (and YA Jobseeker payment) will be available to permanent employees who lose their jobs. These payments will also be available to sole traders, self-employed and contract or casual workers whose reduced income meets the income test criteria.

    Asset testing of Jobseeker payment, YA Jobseeker payment and Parenting Payment will be waived for the period of the supplement.

    The one week ordinary waiting period has already been waived and the Liquid Assets Waiting Period (LAWP) will also be waived for those eligible for the supplement. Those already serving a LAWP will have the remainder waived.

    Income maintenance periods and compensation preclusion periods will continue to apply. Claimants for the Jobseeker payment will have to certify that they are not receiving or eligible for paid employer leave or accessing income protection payments.

    At this time measures are also being taken to streamline the application process including reduced documentation requirements and relaxation of mutual obligation and study requirements where these are impacted by the Coronavirus.

    Details of this measure are available in this Fact Sheet released by Treasury.

    2. Measures to support small and medium size employers

    Proposed effective date: Various – see below

    With reference to the tax-free payment announced by the Government on 12 March 2020 to boost cash flow for small and medium size businesses.

    The Government has now indicated it will enhance that previously announced tax-free cash flow boosting payment. Instead of the previously announced $25,000 maximum, the government is to now provide up to $100,000 (minimum payment of $20,000) to eligible small and medium-sized businesses. Payments will now also be made to eligible not for-profits (NFPs including charities) that employ people.

    Small and medium-sized business entities (including NFPs/charities) with aggregated annual turnover under $50 million and that employ workers are eligible.

    The payments will only be available to active eligible employers established prior to 12 March 2020. However, charities which are registered with the Australian Charities and Not-for-profits Commission will be eligible regardless of when they were registered, subject to meeting other eligibility requirements. This recognises that new charities may be established in response to the Coronavirus pandemic.

    Under the enhanced arrangements, tax-free payments will be made in two stages.

    First stage

    Eligible businesses that withhold tax to the ATO on their employees’ salary and wages will under the first stage receive a payment equal to 100% (up from 50%) of the amount withheld, up to a maximum payment of $50,000.

    Eligible businesses that pay salary and wages will receive a minimum payment of $10,000 (up from $2,000) even if they are not required to withhold tax.
    The tax-free payment in this first stage will be delivered by the ATO as a credit in the activity statement system from 28 April 2020 upon businesses lodging eligible upcoming activity statements.

    Second stage

    In the second stage, additional payments will be made in the July – October 2020 period. To qualify for the additional second stage payments, the entity must continue to be active.

    Eligible entities will receive the additional payments equal to the total of all of the boosting cash flow for employers payment they received under the first stage. This means that eligible entities will receive at least $20,000 (2 x $10,000) minimum, up to a total of $100,000 (2 x $50,000) maximum combined under both payments.

    For monthly activity statement lodgers, the additional second stage payments will be delivered as an automatic credit in the activity statement system. This will be equal to a quarter of their total first stage Boosting Cash Flow for Employers payment and received following the lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).

    For quarterly activity statement lodgers, the additional second stage payments will also be delivered as an automatic credit in the activity statement system. This will be equal to half of their total first stage Boosting Cash Flow for Employers payment and received following the lodgement of their June 2020 and September 2020 activity statements (up to a total of $50,000).

    Further details of this measure are available in this Fact Sheet released by Treasury.

    Other measures announced to support the cash flow needs of small and medium-sized business entities include:

    Under a ‘Coronavirus SME Guarantee Scheme’, the government will provide a guarantee of 50% to SME lenders to support new short-term unsecured loans to SMEs. The Scheme will guarantee up to $40 billion of new lending. According to the government, this will provide businesses with funding to meet cash flow needs by further enhancing lenders’ willingness and ability to provide credit.

    The government is also cutting red tape by providing a temporary exemption from responsible lending obligations for lenders providing credit to existing small business customers. This reform is aimed at helping small businesses get access to credit quickly and efficiently.

    As always I want to reiterate that myself and the team at SFP are here to answer ANY questions you may have during this time. Stay safe in these uncertain times, we’re in this together.

     

    Bill and the team at SFP.

     

     

    If you have ANY questions during this unprecedented time…

    Please get in touch to speak with your Financial Planner we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

     

     

    Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

     

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

    Coronavirus and Financial Markets Melt Down

    Coronavirus and financial markets melt down. What to do?

    Written by Sydney Financial Planning on . Posted in Australian Economy. No Comments on Coronavirus and financial markets melt down. What to do?

    Coronavirus and Financial Markets Melt Down

    Maybe I was wrong? Australians rushing out buying toilet paper and fighting over it like it was gold being handed out for free.

    Some wise person once said:

    “Off with the head and on goes a pumpkin!”

    Thank god my clients still have their own head and use the knowledge they have gained through us and are not making irrational decisions about their investments.

    Yes, the phone rang, and yes, we are all concerned, but the vast majority asked me then same question.

    Q: “Bill, in all your correspondence you have sent us this calendar year – is this what you meant when you said, “This is how the rich get richer and the poor get poorer”?

    A: YES!

    Then most asked me…

    Q: “Is the time right now to start to invest when assets values have fallen greatly?”

    A: YES! (but I also say) patience grasshopper.

     

    This crisis will eventually pass, as investors and Australians become accustomed to the new normal that included the new coronavirus COVID-19, becoming a normal part of daily life along with the flu, obesity, car accidents and other medical issues.

    The difficult part is the ‘unknown’ as we don’t know how long the dislocation phase will last, where we need to reduce social interaction and possible isolation for a limited time. This has significant economic impacts and greatly increases the probability of a recession.

    The global markets have moved from raging Bull to Bear Market. How long will this last and when is it good to start investing again?

    That’s the Million-dollar question.

    The answer is; nobody knows. The best advice is everybody’s situation is vastly different and you need individual high-quality advice.

    What I do know is;

    • That we are in a bear market and we don’t know how far away the bottom is.
    • That right now there is possibly some phenomenal buying opportunities.
    • That markets perform over time and bounce back as seen in the below table.

      sfp e15 001 us stock markets 10 worst days

      Source: Schroders. Refinitv data correct as at 3 March, 2020. Data shown is for the S&P 500 Total Return Index, which includes price increases and dividend payments. Past performance is not a guide to future returns. 413199

    • This is a period of adjustment because we are moving from a long Bull market and nobody can ever pick the bottom of the Bear Market (nor the top of the Bull Market for that matter).
    • If you buy somewhere towards the bottom of the market, there is exceptional value and money to be made.
    • In times like this, the poor unadvised panic and sell at the bottom, and the well-advised rich buy from the poor. That’s how the Rich get Richer!
    • I’ve started investing part of my spare cash back into to the market.
    • I’ve been through many of these volatile times before I’ve learnt what to do and how to best advise clients, as do all our Financial Planners at Sydney Financial Planning.

    If you still have questions and things are not clear; I urge you to arrange to talk with your Financial Planner.

     

    Bill Bracey and the advice team

     

     

    Have you set things up to weather this trend?

    If you need your personal situation reviewed by your Financial Planner or you don’t have a planner yet, get in contact with us on 02 9328 0876.

     

    Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

    General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.