by Dermot Ryan
The government has signalled that business will be a driving force behind Australia’s recovery efforts, and we think this will be good news for domestic shares as we charge towards 2021.
This year has been wild for share markets globally, but the world is learning how to cope with COVID-19 and business is learning how to manage through. Though nothing is set in stone, the Australian Federal Budget adds to our understanding of the pathway to recovery. So far, there are four key signals that the Aussie equities market is likely to benefit from what the government has handed down:
1. So far, so good on the ASX
The ASX 200 has been up every day this week after some pre-released policies over the weekend. This is an indication that markets are responding favourably to the intentions of the Federal Budget. Despite a weak lead from overseas markets, we have a flourishing rally today that has seen most sectors up and in particular those with domestic exposure.
2. Some business barometers are rising
Business spending stocks – like auto and equipment exposed sectors are all up strongly this week so far, again indicating a favourable response to the Budget plans. The asset write off will bring forward capital spending, carry-over provisions for losses will help marginal businesses push on, and we expect private capital formation and expenditure to increase on the back of this budget.
3. Business is front and centre of the Budget documents
Business and middle income packages accounted for half the $100bn spend in the Morrison government’s recovery budget. This is a big win for real businesses with a domestic focus. Further, business is getting fired up across all sectors with spending, tax and hiring incentives, which will help those who can to grow and prosper again.
4. There is room for more measures
There were a few sectors that weren’t heavily addressed in the Budget, indicating room to do more. There is possibly room for stimulus measures to support tourism, migration and mobility, once the path is clearer on a vaccine/containment strategy. But this is a great first budgetary step in the recovery and a giant leap forward in our push for recovery.
Please note this piece was first published on 7 October 2020, following the release of the Federal Budget.
Author: Dermot Ryan, Sydney, Australia
Source: AMP Capital 07 Oct 2020
Reproduced with the permission of the AMP Capital. This article was originally published at AMP Capital
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