Value Investment Partners Economic Outlook

March 2019

Domestic and international markets have been highly volatile over the month of March. With mixed economic results coming out of key international markets and Australia and the day-to-day shifting between pessimism and optimism regarding the global business and trade environment, the bulls and bears have come out strong to deliver a relatively flat month for markets. With the S&P/ASX 200 index recording a 0.79% rise with slightly higher results coming from major international indices such as a 2.97% return from the S&P 500 index in the USA, a 0.55% increase from the Nikkei 225 index out of Japan, and a 3.43% rise from the FTSE 100 from the UK. Much of the economic and political activity over the month of March was very much ‘business as usual’ with continued uncertainty around the US-China trade talks and Brexit. 

Although there has been a considerable amount of noise out of these spaces little ground has been made to coming to solutions for these two massive diplomatic and political challenges that the wave of populism in major economies has fostered. In regards specifically to Brexit the British Parliaments complete incapability to see eye to eye on almost all key measures concerning the divorce from the European Union has in some cases caused the progress of the negotiations to reverse. All things considered many investors are now impatiently waiting for some form of definitive decision making regarding these two key global events, as regardless to the short-term headwinds felt by markets on any form of final decision, in the medium-long term markets will highly likely adjust and continue to grow once business and trade certainty is given. 

In Australia the release of the budget was a win for the coalition although it is unlikely to be enough to significantly influence their chances of retaining government after the next election scheduled to be sometime in May. Although the coalition has used its strong budget to attempt to buy votes with big spending and oneoff cash payments to low-medium income families to reduce the cost of living pressures the opposition party has come out with its own spending policies with the extra money provided by the stronger budget position. The latest Newspoll has the Coalition at 48% and Labor at 52% on a two-party preferred vote, with the Coalition overtaking Labor on the primary vote now at 38% and 37% respectively. Although many investors are concerned with a Labor government much of the headwinds of a Shorten Prime Minister has been priced into the markets and it is unlikely that an overly strong negative reaction in the markets will result after election night. What does this mean for investors? A positive US-China trade outcome and a Brexit withdrawal agreement will continue to return certainty of the world trading system and boost equities markets. Positive or neutral economic data from key economies will dull down worries of a recession in the near term and continue to give support in financial markets. Giving reasons for continued optimism and bullishness further into 2019.