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Markets seem to have taken a sigh of relief post the US election result with risk assets seemingly returning to their upward trajectory. Lukasz de Pourbaix ED, CIO Lonsec Investment Solutions will discuss the latest insights for our recently held asset allocation investment committee. Specifically, Lukasz will discuss the rotation into value style stocks, a discussion of the key economic and market indicators and risks investors should look out for.



This information is provided by Lonsec Investment Solutions as a corporate authorised representative of Lonsec Research Pty Ltd who hold an AFSL number 421445. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. You can access a copy of our financial services guide at lonsec.com.au

This video is provided by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research). LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Past performance is not a reliable indicator of future performance. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. While care has been taken to prepare the content of this video, LIS makes no representation or warranty to the accuracy or completeness of the information presented, which is drawn from public information not verified by LIS. The information contained in this video is current as at the date of publication. Copyright © 2020 Lonsec Investment Solutions Pty Ltd ACN 608 837 583

Lonsec is very pleased to be able to announce that, for the 5th year running, we have once again been declared the overall winner of Research House of the Year. The award is the result of an annual questionnaire carried out by Money Management magazine.

Lonsec is continuing to invest in its infrastructure, systems and team, to ensure that we stay in this position going forward. Some exciting developments are planned for next year and we look forward to sharing them with you in due course.

In particular we would like thank our many thousands of clients for continuing to use our services and telling us and the wider industry how you value what we do.

Thank you,
The Lonsec Team 

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Many of you will be aware that your clients are increasingly seeking out investments that align with their personal values.

Further to the launch of the Lonsec Sustainability Score, the Lonsec Sustainable Managed Portfolios will utilise Lonsec’s extensive portfolio construction experience, together with detailed sustainable investing (and ESG) research, to provide a solution that genuinely caters to the needs of investors.

Listen to the key members of the Lonsec investment team to find out more about how the portfolios are formulated and how they can help deliver what your clients really need.

During the September 2020 quarter global infrastructure securities (+0.8% in AUD hedged terms) saw early gains almost negated and again underperformed the broader global equities index (+6.3% AUD hedged) for the fourth successive quarter. Unhedged infrastructure returns (-2.0%) were again held back by a stronger Australian dollar. For the calendar year to date, the returns from global infrastructure securities (-12.3% AUD hedged and -13.2% unhedged) underperformed global equities (-1.3% AUD hedged).

The near-term cash flow outlook for most user-pays infrastructure is negative relative to 2019, but the outlook varies greatly by sub-sector. Transport infrastructure has calendar 2020 earnings per share changes of -70% to -90% for airports and -40% to -60% for toll roads due to travel restrictions. While road traffic has bounced back in North America and Europe, air travel internationally is more problematic as cross-border restrictions have been re-imposed to various degrees as COVID-19 has resurged in Europe. In Australia, the expected recovery to 2019 levels continues to be pushed out for domestic (2023) and international (2026) travel.

The share prices of Oil & Gas Pipeline stocks have been hard hit from a combination of concerns over the direct and indirect impact of lower crude prices, counter-party risks, and the deferral of capital expenditure. However, there is little exposure for pipeline operators to direct oil and gas price changes. Similarly, most pipeline companies are not significantly exposed to poor credit quality companies. Most pipeline volumes are supported by take or pay contracted terms. As a result, calendar 2020 earnings are only expected to decline -10 to -20%.

While COVID-19 has resulted in a decline in activity in the physical world, there has been a resulting increase in activity online. This has benefited the Communications Sector with 2020 earnings of cell tower stocks expected to increase between 10% and 15%. Earnings for Water and Electric Utilities have remained resilient, reflecting their essential nature, with 2020 earnings expected to remain flat or increase marginally.

Emerging Markets have been hit particularly hard by COVID-19, with the S&P Emerging Markets Index (Unhedged) returning -34% over the nine months to 30 September 2020. Many of these countries do not have the government resources to mitigate the negative economic effects of COVID-19 for sustained periods. However, the two Australian-based Emerging Markets Managers in the sector, RARE and 4D, both see significant long-term opportunities with earnings multiples at historically low levels. They also note that unlike prior crises, the balance sheets of most emerging market companies have held up relatively well.

Fire season began early in California this year. While there has been some legal complexity in past seasons, generally Californian utilities (PG&E, Sempra and Edison) are liable if their equipment has contributed to starting a fire. To date, this season’s fires are believed to have been caused by lightning strikes and the share prices of these utilities have not been greatly impacted. Furthermore, there are very few Managers with any remaining exposure to PG&E, which has most of its assets in Northern California. Sempra and Edison have their assets in the southern part of California, where there have been fewer fires.

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2020 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Lonsec’s managed accounts have posted the fourth consecutive month of record growth in October, adding $100m in net inflows across its broad suite of diversified, retirement and listed portfolios.

The results highlight the success of Lonsec’s research-backed managed account model, which combines Lonsec’s portfolio construction expertise with Australia’s largest investment product research team.

Lonsec CEO Charlie Haynes said more advisers were turning to Lonsec for a professional, actively managed investment solution, whether off-the-shelf or tailored to a licensee or practice’s needs.

“The success of our managed portfolios comes down to three things: our investment philosophy, the diversity of expertise on our investment committees, and our research capabilities,” said Mr Haynes.

“Our active approach to asset allocation and asset selection, coupled with our ability to identify high-quality investments based on our extensive research coverage is proving attractive to advisers.”

The growth in Lonsec’s managed accounts reaffirms the importance of knowledge as well as execution, positioning the company as a major provider of investment solutions, along with its traditional research offering.

Part of the appeal is the breadth of Lonsec’s solutions, including diversified multi-asset portfolios, objectives-based retirement portfolios, listed portfolios, and direct equity SMAs. All are underpinned by the same proven philosophy and dynamic approach to portfolio management.

“Lonsec is known for its research and investment insights advisers and investors can trust, but more and more advisers are approaching Lonsec as a one-stop-shop for their investment solution needs,” said Mr Haynes.

Lonsec will add to its suite of investment solutions with the imminent launch of its Sustainable Managed Portfolios. These draw on Lonsec’s latest sustainability research to construct high-quality, risk-managed portfolios that target sustainable themes.

“The Sustainable Managed Portfolios are a great example of how Lonsec continues to develop its offering to meet a wide range of investment needs,” said Mr Haynes.

“We want to help advisers provide a genuinely sustainable investment solution that aligns to their clients’ values and investment objectives.”

Release ends

SuperRatings and Lonsec have announced the winners of this year’s Fund of the Year Awards, which was held virtually for the first time in the event’s 18-year history.

The Fund of the Year Award went to QSuper, which also took home the Pension of the Year Award and the Smooth Ride Award. UniSuper claimed the MySuper of the Year Award, and Sunsuper clinched the MyChoice Super of the Year Award.

The winners were announced at a virtual awards event on 29 October, broadcast live from the Museum of Contemporary Art, Sydney.

“It’s important to recognise the significant work that all funds have done to support their members through a very challenging year,” said SuperRatings Executive Director Kirby Rappell.
“In a highly competitive field, we decided that QSuper was the fund that performed most strongly across the key criteria of investment performance, fees, member services, financial advice and insurance, and fund governance.”

“Congratulations to the team at QSuper on a fantastic effort. It was a strong field this year and we note the high calibre of all award winners, with the quality of their offerings shining through the pandemic.”

“A lot has changed in super, and there are even more changes to come. We should always be focused on improvement, but we shouldn’t lose sight of the incredible outcomes being produced by a large number of funds, both for their members and the retirement system as a whole. Despite the uncertainty, there is every reason to be positive about super.”

 

Congratulations to all of the finalists for this year’s SuperRatings and Lonsec Fund of the Year Awards Dinner. A full list of the awards is available below.

SuperRatings Fund of the Year Award

Winner

QSuper
 
 
 
 
 
 
 
 

SuperRatings MySuper of the Year Award

Awarded to the fund that has provided the Best Value for Money Default Offering.

Winner
UniSuper

Finalists
AustralianSuper
BUSSQ
CareSuper
Cbus
Equip
HESTA
QSuper
Sunsuper
TelstraSuper
UniSuper

SuperRatings MyChoice Super of the Year Award

Awarded to the fund with the Best Value for Money Offering for Engaged Members.

Winner
Sunsuper

Finalists
AustralianSuper
Aware Super
Hostplus
Mercer Super Trust
NGS Super
QSuper
Statewide Super
Sunsuper
Tasplan
UniSuper

SuperRatings Pension of the Year Award

Awarded to the fund with the Best Value for Money Pension Offering.

Winner
QSuper

Finalists
AustralianSuper
Aware Super
BUSSQ
Cbus
HESTA
Hostplus
QSuper
Sunsuper
TelstraSuper
UniSuper

SuperRatings Career Fund of the Year Award

Awarded to the fund with the offering that is best tailored to its industry sector.

Winner
Cbus

Finalists
BUSSQ
Cbus
HESTA
Mercy Super
TelstraSuper
Hostplus

SuperRatings Momentum Award

Awarded to the fund that has demonstrated significant progress in executing key projects that will enhance its strategic positioning in coming years.

Winner
Aware Super

Finalists
Aware Super
Cbus
Equip
HESTA
Mercer Super Trust
Sunsuper

SuperRatings Net Benefit Award

Awarded to the fund with the best Net Benefit outcomes delivered to members over the short and long term.

Winner
AustralianSuper & HESTA

Finalists
AustralianSuper
Cbus
HESTA
Hostplus
QSuper
UniSuper

SuperRatings Smooth Ride Award

Awarded to the fund that has best weathered the ups and downs of the market, while also delivering strong outcomes.

Winner
QSuper

Finalists
AustralianSuper
Aware Super
BUSSQ
CareSuper
Cbus
QSuper

Infinity Award

Awarded to the fund most committed to addressing its environmental and ethical responsibilities.

Winner
Local Government Super

Finalists
Australian Ethical Super
CareSuper
Christian Super
Future Super
HESTA
Local Government Super

Lonsec Investment Option Award

Seeks to recognise and highlight the work of asset managers and key players incorporating ESG.

Winner
CareSuper – Sustainable Balanced

Finalists
CareSuper – Sustainable Balanced
Cbus – Growth (Cbus MySuper)
Suncorp Multi-Manager Growth
Sunsuper for Life – Balanced

 

Release ends

The performance of the Alternatives universe in the September 2020 quarter was again widely dispersed albeit sector performance was skewed to the upside.

After eight months of the global pandemic, many nations still struggle to control the virus and have expended all ordinary policy responses to prop up the global economy. Volatility in security prices remain, with added geo-political uncertainty and the US presidential election further clouding the global market outlook. Despite these uncertainties, the market has been largely unwavering in its ‘risk-on’ stance albeit retreating somewhat in September.

Managed future strategies were largely unfavourable over the quarter as choppy market conditions and shifting market sentiment hampered trends previously established. While stimulus led trends were evident early in the quarter, simmering geopolitical concerns and fears of a potentially more disruptive second wave weighed on markets late in the quarter. Credit exposure, notably high yield, was a reasonably strong performer through the September quarter. Additionally, risk appetite was also evident for less defensive areas of the fixed income securities such as emerging markets given the yield control measures in place within many developed markets. Commodities, as measured by the S&P GSCI Index, delivered a positive return in the third quarter, aided in part by US dollar weakness with oil the key laggard during the quarter.

As occurred in the previous quarter, the equity market neutral sub-sector continued its strong performance during the quarter. Stock dispersion continues to be elevated, which is highly favourable for the strategies. The market continues to punish companies operating in industries adversely exposed to the virus, while paying a significant premium for those with strong growth prospects or higher quality balance sheets that can survive the continued drop off in economic growth. Equity issuance slowed within the Australian market over the quarter. Equity issuance had allowed for strong alpha capture in the previous quarter as many offers were priced at attractive discounts to market prices.

Discretionary global macro strategies continued to post positive returns through the quarter benefitting from favourable cross-asset and inter-sector dispersion. The qualitatively driven strategies appear better placed to adapt and react to changing market conditions and significant central bank intervention compared to their systematic global macro peers. These tend to be better placed to balance the portfolio across asset classes using a combination of directional and spread trades in addition to dedicated hedges.

Private equity and debt markets were up through July and August, while those funds with exposure to real estate assets weighed on returns. Deal flow and activity is making a return, albeit not within the secondary market as might be expected. Given the strong rally and sentiment in public markets, stress and forced selling hasn’t yet materialised across the sectors, with the exception being real estate.

The focus of Managers largely remains on managing the current pool of assets and seeking opportunistic bolt-on acquisitions with controlling interest. Managers with excess capital are well placed to buy attractively priced business if forced selling becomes more widespread. Within private debt, the market has largely normalised, with risk appetite returning albeit the market less favourable for debt exposed to leisure, retail and energy sectors. Nonetheless, newly priced issues tend to require greater level of asset security and financial covenants which is favourable for the lender.

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2020 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

The Australian property securities market has seen most prices continue to recover during the September quarter 2020 as the reporting season was better than expected. However, the bifurcation between sub-sectors is similar to the global property securities markets. Industrial/Logistics, specialist, funds management, large format, and non-discretionary retail sectors have outperformed in calendar 2020. Discretionary retail and office sectors underperformed.

The Retail sector has had to deal with forced store closures (excluding supermarkets and essential provisions), with the Melbourne metropolitan region still under lockdown restrictions. The government mandated Leasing Code of Conduct has shared the pain of reduced revenues for eligible small-to-medium enterprises, although some larger retailers have been attempting to withhold rents and renegotiate based on a revenue-linked model.

Overall, rent collections in retail have been around 55% for the June 2020 quarter, with dividends cut or omitted by the likes of Scentre Group. Retail rents for discretionary stores are likely to continue to come under pressure. In contrast, non-discretionary retail centres anchored by supermarkets have traded strongly, as have large format centres with Bunnings Hardware, Officeworks, and JB Hi-Fi as tenants. Property valuations of the latter have remained firm, while discretionary mall valuations have fallen.

The Office sector has continued to collect a high level of rents and valuations have seen limited reductions given the level of local investor interest in high quality Australian property (albeit international interest is more subdued given that travel is not possible for inspections). Medical and tech-related space is also well sought after by smaller investors. However, rental incentives are rising and sub-lease space in Sydney and Melbourne has grown by 100,000 square metres.

The Industrial/Logistics sector has been led by Goodman Group, with a strong FY20 earnings result and reaffirmed positive outlook based on its global development pipeline and recurring funds management fees. In Australia, logistics developments are expanding to cater for the ongoing shift to online networks with some vacancy increase on the east coast.

The Residential sector has received significant government support from the JobKeeper and JobSeeker programs and other incentives by various state governments. Further easing of lending criteria by APRA, in addition to loan repayment deferrals by the major banks, has lent support during the pandemic period. However, these measures are scheduled to unwind over the next six months (excluding the $25,000 Homebuilder program and easier lending requirements), which is likely to expose the residential sector to high unemployment. While Australia’s international in-bound travel is severely limited, migration numbers will be down significantly relative to previous years and the outlook for new residential property sales from this source is likely to be subdued.

Several Australian REITs (A-REITs) had capital raisings during 2020, so balance sheets are well-positioned with average gearing around 27%. At the same time the cost of debt has reduced with interest costs for new debt down from around 3.0–3.5% to 2.0–2.5% over the last year.

Pricing in the A-REIT sector has Industrial/Logistics (+71%), Hardware (+33%), and Service Centres (+13%) at premiums to net asset values (NAV). Sectors at a discount to NAV are Office (-17%) and Retail, although discretionary malls are at -54%, but non-discretionary centres at a 1.0% premium. Capitalisation rates have reduced over recent years and have now started to ease (for retail discretionary) or steady out (for office) but remain firm for Industrial/Logistics and Specialties (including Hardware).

Lonsec believes the Australian real estate market, which was already late in the cycle pre-COVID, has extended its late-stage duration as a result of ‘lower-for-longer’ monetary policies. Despite deferrals and cancellations of dividends by some REITs, Australian property securities still offer attractive yields relative to both bonds and cash (holding at a 3.0–4.0% yield differential). Sectors with structural tailwinds (logistics, industrial, and specialised) are expected to enjoy more resilient cashflows and distributions, and as a result will continue to trade at a premium. Until the COVID-19 pandemic is brought under control, the way forward remains unclear. However, value investors will be tempted to look at heavily sold-off sectors at some stage.

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2020 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

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Synopsis

Super funds are on track to stage a remarkable comeback in the second half of 2020. But there are still a host of challenges facing funds, including early access, market volatility, insurance claims, and ongoing regulatory uncertainty.

Join Kirby Rappell, Executive Director of SuperRatings, as we examine how funds are positioned to manage these challenges through 2020 and beyond.

Key takeaways:

• Get insight into trends across fees, insurance, asset allocation, and member servicing, based on the most in-depth bench-marking data available.
• Assess the major market themes affecting super fund portfolios through the 2020 pandemic and how trustees are responding.
• Learn how consolidation is impacting the super industry and what funds need to do to keep their offering competitive.
• Understand the key tests of tomorrow for super funds and how advisers can assess and compare super fund offerings to meet their best interest duty.


Any advice that SuperRatings provides is of a general nature and does not take into account an individual’s financial situation, objectives or needs. Because the information that SuperRatings receives about superannuation and pension financial products is from a number of sources, it is not guaranteed to be completely accurate. Because of this, individuals should, before acting on the information, consider its appropriateness having regard to their own financial objectives, situation and needs and if appropriate, obtain personal financial advice on the matter from a financial adviser. Before making a decision regarding any financial product, individuals should obtain and consider a copy of the relevant Product Disclosure Statement from the financial product issue.

If the May 2019 Budget was all about back to black, this year’s Budget is all about rescuing and repairing the economy.  

Last year’s Budget forecast a small surplus of 0.4% of GDP in 2019-20, the first surplus since the GFC. In fact, a small surplus of 0.4% of GDP was indeed achieved in 2018-19, but budget deficits as large as -4.7% was forecast for 2019-20, and -10.2% for 2020-21. This compares to the -3.7% deficit at the height of the GFC, making it the deepest since World War II. 

Budget net operating balance (% GDP) 


Source: Treasury, Lonsec
 

How did we get here? 

We’ve had a tumultuous year since last year’s Budget, with bush fires, drought, and a global pandemic. Those negative shocks sank our economy into the first recession since 1991, with GDP contracting 7% in the June quarter. 

With reduced economic activity, tax receipts have reduced. Income taxes collected have fallen on the back of lower employment and hours worked. Company tax receipts have also fallen as many businesses remain shut or operate below capacity. GST revenue declined too, with fewer sales of goods and services. Tax receipts fell across the boardwith the one notable exception being—perhaps appropriately—taxes on the sale of spirits. 

Commonwealth revenue and expenses (% GDP) 


Source: Treasury
 

On the spending side, the government has put in place significant stimulatory measures to support the economy and employment. These include: 

  • $120 billion over 2019-20 and 2020-21, primarily for the JobKeeper payment. 
  • $46 billion mainly in the Coronavirus Supplement, economic support payments to households, and increased JobSeeker payment. 
  • $40 billion to provide further support for apprentices, trainees, hospitals, aviation, and the infrastructure sector. 


S
ource: Budget papers 

Overall, compared to the government’s Economic and Fiscal Update in July 2020, where a small surplus of $12 billion was forecast for 2020-21 (0.6% of GDP), this Budget shows an estimated deficit of $198 billion (-10.2% of GDP). Contributing the most to the deterioration is around $127 billion in additional spending, followed by $42 billion less in expected revenue due to reduced economic activity. 

How are we going to pay for all this?  

The short answer is, with debt. And a lot of it. Commonwealth Government net debt is forecast to rise to 36% of GDP in 2020-21, and even further to 43.8% in 2023-24. This compares to 19% in 2018-19. 

This may sound high, but by international standards Australia’s net government debt level is relatively manageable. Prior to the COVID-19 pandemic, the average net debt level among developed economies was 43% of GDP. The US and UK both had net debt of around 77% of GDP, while Japan had the highest at 155% of GDP. Ratings agency S&P has confirmed Australia’s AAA rating with negative outlook, with Fitch and Moody’s reserving judgement for now.  

With interest rates at historic lows, financing the debt should be a secondary consideration, with the primary focus being to get the economy back on track 

What are the key Budget measures? 

  • $26.7 billion temporary investment tax incentives: Businesses with aggregated annual turnover of under $5 billion can deduct the full cost of eligible capital assets acquired from 6 October 2020 and first used or installed by 30 June 2022. 
  • $17.8 billion of income tax cut: Bringing forward the second stage of the Personal Income Tax Plan by two years to 1 July 2020 as well as a one-off additional benefit from the low and middle income tax offset in 2020-21. 
  • $15.6 billion in additional spending on the JobKeeper Payment: Eligibility has been expanded largely In light of the prolonged restrictions in Victoria. 
  • $10.7 billion in infrastructure spending: Including $6.7 billion in grants to the states, $3 billion for roads and community infrastructure, and $1 billion for water infrastructure. 
  • $4 billion for a JobMaker Hiring CreditTo give businesses incentives to take on additional employees aged between 16 and 35. 
  • Additional measures: Including $1.2 billion to support 100,000 new apprentices and trainees with a 50% wage subsidy and undoing $2 billion cuts to R&D incentives. 

When will we get out of the recession? 

The Treasury forecasts economic activity to pick up from late 2020 and into early 2021. The recovery is expected to be driven by a further easing of restrictions and improvements in business and consumer confidence. Economic activity will be further supported by Government stimulatory measures, both fiscal and monetaryThe RBA has also hinted at further easing, with another rate cut or announcement of further QE widely expected at its November meeting 

The IMF in its June 2020 World Economic Outlook forecast Australian GDP to decline by -4.5% in 2020 before rising by 4% in 2021. While this is our first recession since 1991, Australia’s experience with containing the virus outbreak means the economic is faring relatively well by international standards. For example, the IMF forecast US GDP to contract by -8% in 2020, -10.2% in the UK, and -12.8% in Italy and Spain. 

Yesterday’s Budget forecasts GDP to fall by -3.75%better than the IMF forecastbefore growing by 4.25% in 2021. It also forecasts unemployment to peak at 8% in the December quarter of 2020, before falling to 6.5% by June 2022 as economic activity recovers. Both the GDP and unemployment forecasts are more optimistic than many leading economists believe. 

While the COVID-19 pandemic should be a severe but temporary shock, the path to recovery remains a gradual and uncertain process. This Budget has taken important steps to support the economic recovery, but the speed and magnitude will depend on many other factors, including international health and economic outcomes, as well as domestic business and consumer confidence. 

Broad measures such as income tax cuts and investment allowance will support overall business and consumer confidence, but more targeted measures might be welcomed by more severely affected sectors such as education and tourism. The government also failed to take the opportunity to enact structural reforms such as reforming the tax system or improving overall labour productivity, which would benefit economic growth in the long term. 

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2020 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.