Value Investment Partners Economic Outlook

August 2018

The end of August brought the Australian stock market to a ten-year high, with VIP benefiting particularly from CSL’s +15.61% return for the month, an outstanding performer for the year thus far with +79.15% for the year. Following the Health Care trend, Resmed also posted a +10.24% return, and Seven Group bounced back with +8.71% for August. Naturally, the US market is also riding record highs. The US economy has shown significant strength on the back of optimism in business sentiment, which no doubt has been a catalyst to the economy gaining jobs as well as investment. Opinions aside on the current POTUS, it must be said that at least part of this is owed to his presidency, given his insistence on spending on the US economy and decision to cut the US federal corporate income tax from 35% to 21% earlier this year. While it may cause problems for the future, at least for the short term the fiscal stimulus has pumped up US growth. The tax cut in fact is more than a short-term play, given that it in theory encourages investment, leading to job creation and wage inflation. The concern here is that all this is funded by debt, which put the US on a less sustainable spending pattern than it could be. Locally, August saw once again a new Prime Minister step into office for this country. Scott Morrison, as 30th Prime Minister, will seek to pull the Liberal Party out of a catastrophic 2018 and attempt to maintain parliament in next years federal election, for which the Labor Party is now largely favourites. Despite turmoil at the head of Australia, the stock market continues to go from strength to strength. The movements in parliament are now more than ever in the forefront of VIP’s sights. With a new head of the Liberal Party, the stage is now set for what will most probably be a matchup between Morrison and Bill Shorten next May.