What just happened?
Few people expected the Australian share market to have its best month since July 2016. While lower interest rate expectations and a company reporting season that met expectations (as opposed to disappointing) helped, the big moves were a result of two factors that will not reoccur and are unlikely to change our views going forward.
The banks and miners are a big part of the Australian market. Banks had one of their biggest days ever when the final report of the Royal Commission was published. Apart from a spat with the heads of NAB (they did not look humble enough, while the other CEO’s were well advised not to take on Haynes’ significant personal ego and pretend to be very sorry), and the seeming destruction of mortgage broking, all that noise and outrage resulted in very little impact on the banks business models. The RBA and treasury have subsequently suggested the recommendations on mortgage broking might not be that well thought out.
Vale, one of the world’s largest iron ore producers, who had a disaster previously when a dam broke on a project that was a joint venture with BHP, suffered an even greater disaster on their own. As a result, they shut down many dams using the specific type of mining process and the iron ore price consequently shot up.
The Australian economy remains close to a dangerous tipping point. It will all come down to employment, but maybe the lucky country will continue to dodge the bullet and we hope this is the case. However, if employment weakens things could get messy and we continue to focus on structuring portfolios to provide protection from a downturn in Australia.
For further information or to discuss how we can help you, please speak to your adviser.