Is Australia a lead indicator for a global recovery?
Australia has had remarkable success in controlling the impact of COVID-19. New cases peaked in August 2020, leading to most major lockdown restrictions being lifted by the end of 2020. Australia’s economic recovery has since been robust and appears to be gaining traction, supported by extraordinary levels of fiscal and monetary stimulus.
So what lessons can we apply to offshore markets? While few major economies have controlled the virus as well as Australia, there have been clear behavioural trends observable across geographies, such as panic buying, increased spending on the home, and a pick-up in household savings ratios. This newsletter outlines some Australian data as a guide for what we might expect internationally should global COVID cases be brought under control.
Source: ourworldindata.org/ Auscap.
New COVID-19 cases in Australia peaked in August and appeared to be well under control by late September. Unsurprisingly, consumer confidence and retail sales growth softened during the two COVID case peaks. Since October, retail trends have experienced sustained strength.
The improvement in consumption was broad-based, including big ticket items, such as cars.
Source: Federal Chamber of Automotive Industries/Auscap.
Foot traffic in major indoor shopping centres was heavily impacted by the spikes in COVID-19 cases, driven by a combination of government restrictions and some consumer unease. However, Australian foot traffic has since been recovering to near pre-pandemic levels, with the notable exception of CBD locations. Multiple major landlords and retailers have noted that the conversion of foot traffic into sales has increased post the COVID peaks.
Source: Company disclosures/Auscap.
Australian job advertisements now exceed pre-COVID levels. Unsurprisingly, the biggest month on month increases in job advertisements followed Australia’s recovery from each major wave.
High household savings rates, significant Government stimulus, changes to working arrangements and lower interest rates have fuelled renewed demand for residential property, with house price gains seen across the country in recent months.
This demand has extended to new housing, with housing building approvals at record highs.
This data is interesting in the context of the global health recovery from COVID-19. The United States saw cases peak quite recently. However, the combination of lockdown measures and the rollout of approved vaccines has seen the number of new cases plummet.
Similarly in the United Kingdom, new cases peaked in early January. Since then, more than 15 million Britons have received the vaccine. This, combined with current lockdown measures, has seen new cases falling rapidly.
In fact, this trend can be seen across the globe.
There are a number of ASX-listed companies with meaningful exposure to the macroeconomic trends listed above in offshore markets, which currently trade at a discount to comparable domestic businesses. If the impact of COVID-19 has peaked, Australia may provide an interesting lead example of the ability of economies to bounce back from the pandemic. Should this be the case, there might be reason for optimism in international markets where economic data points have lagged behind Australia.
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