Spring is in the air! With that, now we all hope that we can get the good ol’ spring back in our step as we approach the coming out of lockdown next month! My 21-year old daughter, having her social life curtailed during much of the many months of Covid-19, is desperately counting the days to the ‘Freedom Day’ being planned for 18th October, when the gates re-open! She, like most of her friends are double ‘vaxxed’, so ‘can travel’! 😊

Australia is just about to reach the first magical target single vaccination level of 70% for ages 16+, and then the greater target of 80% for the population to be double dosed within the next couple of months.  Not far now. We will see more and more normalisation back in our lives. If the lockdown period were extended too much longer, we may be lulled into thinking that lockdown is the actual norm, where one day just blends into another! 

We look at what is now happening overseas, where the much-anticipated vaccinated herd approach to ‘open again for business’ is well underway. I think we can see just how effective the vaccine has been in reducing the impact of the virus and, thereby, allowing for more normality to return, by bringing increased business activity and heightened socialisation. We hope that will be happening more in Australia in the very near future. Roll out the vaccine, roll out the economy!

The markets have performed well from the perspectives of growth in price terms and in dividends paid in the past few months. The keenly awaited recent corporate reporting season has been well received with some very good results Although, the forecast earnings updates have been pared back a little given the Delta strain impact and uncertainty in recent months. However, it is envisaged that this concern will be temporary given we know the government vaccination targets and timetables being more imminent for the lifting of restrictions. The stronger business buoyancy pre this lockdown looks like it will be returning.

This also reflects the broad optimism in the continued actual recovery of global economies as they emerge out of the slowdowns and lockdowns during the grip of the pandemic on economies, not to mention the adverse social and personal costs. We know that complacency to ongoing hygiene and social distancing requirements, etc. remains a threat to a speedier pace of recovery, as well as influencing whether there may be future lockdowns. In saying all that, there does appear to be a strong stance by many nations that have reached high vaccination rates now to simply say that, if Covid-19 numbers rise, the lockdown option if is not really a consideration given the sheer adverse enormity of the impacts on business and on people’s lives. Some common sense always helps too! And a need to combat certain political and media immersed misinformation and fear mongering.

So, where to from here for the markets we ask. Looking at the past year or so, growth assets such as equities, property and infrastructure have shown a very good performance, while bonds and cash remain cellar dwellers with interest rates at or near 0% level.

A lot will depend on the speed of the global recovery, such as, the opening of supply lines, international travel increasing, restaurants and bars reopening, people spending more at shops and online, and general increased consumer and business confidence in the future ahead. A lot will depend on central banks reduction levels and timeframe of tapering of bond buying programs, and the continued degrees of governments stimulatory and support programs, and infrastructure projects, etc.  We know there is a shortage of many supplies, and there is a shortage of skilled workers and professional labour. We know there definitely is capacity for the continued future growth path that was thwarted in the past 18 months of Covid-19 impact. Managed properly, next year should see strong opportunities for growth.

On the flipside, we also know that inflation has been spiking in certain places. Inflation normally occurs when demand exceeds supply. The demand for goods, building supplies, labour, services, travel, and holidays, etc. is only increasing. And there is plenty of cash out there looking to be spent but, also, hopefully it be spent sensibly (or maybe to be invested by the wise investors!).

The faster that countries get ‘back to normal’ will, I feel, accentuate more demand, and the supply to meet this demand will be slower to happen. This will pressurise prices to go up, which will in turn shift inflation upwards. As we have mentioned previously, inflation rising also implies there will be rising interest rates, which is bad for holders of bonds and for those with high mortgages that stretch their cash flow if repayments increase. Would this inflationary increase scenario be transitionary or become more entrenched? That will depend, but central banks seem to want to manage inflation changes so hopefully all will occur orderly!

The strong economic recovery winds that were around earlier in the year were somewhat deflated by the devious Delta variant of the virus. That wretched limo driver! Yet, this all did prompt much faster vaccination rates to occur since that fateful car trip from the airport over three months ago. Delta did delay rather derail growth. So, although we are all a bit battered and tired from the Covid-19 impact to our lives and businesses etc. I think that the desire and the appreciation to get all back on board to the road to recovery is well there. By Christmas onwards, we could be well on the way. Let’s hope so. Let’s get back our mojo!

The markets have certainly built in some level of confidence in the recovery ahead. All going well, the gains will be validated. Yes, there will be bouts of outbreaks of the virus but, really, the show must and wants to go on!

The delaying of growth and recovery because of the impact of the Delta strain was mentioned above. Now, we must hope that governments, on all levels, play a sensible and positive part in the recovery process by cooperating with each other, and by reducing red tape and work on easing regulations. I think we could all sense at stages of the past eighteen months that some power fiefdoms were becoming too comfortable with certain politicians, who have enjoyed and arguably extended their accelerated rise to notoriety, at the expense of the ‘greater good’ of the whole country! We shall see.

As always, should you have any queries please do not hesitate to contact us.