The S&P/ASX 200 (INDEXASX: XJO) is expected to jump higher at the open on Thursday. Here’s what you need to know.
Australia’s recession
The Australian economy is now experiencing its first recession in close to 30 years. The initial impact of the COVID-19 outbreak sent domestic GDP down 0.3% in the March quarter, with experts predicting a contraction of as much as 8.4% in June.
But what does it mean?
Clearly nothing, as markets continue to rally, the ASX 200 ending up 105 points or 1.8% on Wednesday. It is now down just 11% for 2020. Australia’s contraction was among the ‘best’ in the world, beating the likes of the US economy (-1.3%), UK (-1.9%) and the EU (-3.75%), thanks primarily to our continued reliance on construction and mining exports.
The global market rally also continued overnight with the Dow Jones adding 2%, four stocks rising for every one that fell and banks like JP Morgan (NYSE:JPM) (+5.4%) and airlines, Boeing (NYSE:BA) (+12.9%) leading the way. I can’t help but feel a strange disconnect between the issues facing the global economy and the markets charger ever higher.
Questionable decisions
Australia’s Clime Investment Management (ASX: CIM) has been identified as the unlikely buyer of financial services licensee Madison Financial Group for $4.5 million. This will add compliance, administration and technology delivered to financial advisers to Clime’s diverse range of services.
UAC Energy lobbed a takeover bid for Infigen Energy Ltd (ASX: IFN), one of Australia’s few listed renewable energy providers focused on wind. The offer was $0.80 or $777 million, with the share price immediately trading in line with the offer. Given the uncertain market, I’d suggest shareholders approve the deal despite protestations from the board.
Chinese internet giant Net Ease (NASDAQ: NTES) has flagged a re-listing on the Hong Kong stock exchange, seeking more capital to expand internationally, despite some 89% of revenue coming from China 10 years after its initial global expansion.
Free money?
Amazon Inc (NASDAQ: AMZN) was the latest business to head to markets for more debt to fund its operations, managing to secure a three-year loan at a rate of just 0.4%.
This comes as Australian property experts predict that mall values could fall as much as 30% in the short term as rental receipts fall precipitously — not a good outlook for the likes of Scentre Group (ASX: SCG), Vicinity Centre’s (ASX: VCX) and Unibail-Rodamco-Westfield (ASX: URW).
The highlight of yesterday was no doubt the unexpected growth in China’s PMI’s or leading economic indicators, suggesting the worst may be over, particularly for Australia. This impacted the likes of gold miners such as Northern Star Resources (ASX: NST) and Newcrest Mining (ASX: NCM). In my view the AUD rally will be short-lived as the real issues facing the economy come to light.
Finally, if you’re looking for something to read now try Rask’s 10 Rules For Stock Market Investing.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
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