Australia’s sharemarket could jump by as much two thirds over the next decade, underpinned by a booming superannuation sector and the nation’s status as a “growth haven”, according to a new report by Macquarie Research.
Jason Todd, head of Australian macro-economic research at Macquarie, said Australia’s super pool, which is expected to rise from $2.3 trillion to around $8.8 trillion over the next 25 years, would provide a “backstop” to equity markets and demand for new listings.
He argues that while many view the Australian market as expensive, it is currently trading at 16 times earnings versus a long-run average of 19 times. The US sharemarket is trading at 29 times.
James McIntyre, head of economic research for Australia at Macquarie, described Australia as a “growth haven”, pointing out that economic growth has outstripped other advanced economies by 0.7 per cent over the past 25 years.
…While recent changes to Australia’s immigration policies showed it would not be untouched by this shift, which Macquarie sees as structural rather than cyclical, Mr McIntyre said support for immigration was still relatively high compared to other nations. He estimates this support gives the Australian economy a 1 percentage point boost compared to other advanced economies.
…The Macquarie report suggests four sectors that should do well over the next few decades: education, tourism, services and agribusiness.
Now, I don’t want rain on anyone’s parade here but that is rubbish. Australian immigration is clearly going to be cut and it’s just as well because the wondrous growth being celebrated has done absolutely nothing for stocks. Indeed, the highest period of immigration in Australian history has coincided with the worst period of equity under-performance that anyone can remember:
That’s us in blue right down the bottom, only managing to beat the Poms. Germany, US, Canada and Norway are all miles ahead. And note that two of those are commodity economies that do not have high immigration.
Moreover, once immigration is cut then it will add to the Great Australian Adjustment. Ahead for the next decade is not just the final earth-shattering reversion to mean in the terms of trade as China goes ex-growth, it is what that will expose that counts even more. Without all of that free and unearned dough from mining, the debt-driven services sector is going to decline into a long and grinding phase of deleveraging the likes of which Australia has not seen in nigh on a century.
Note that I am not saying that the deleveraging will necessarily transpire purely as some super crash in the household sector. It might, but there are other avenues for it. The non-mining tradable sectors will grow, as Macquarie says. There will be public investment. Productivity will have to improve and the currency will sink a long way from here as well, devaluing assets and ensuring that locals have their international purchasing power slashed.
All of theses things will aid the adjustment ahead. But what they all add up to, above all else, is weak growth and equity under-performance, just as we’ve seen for the past five years. Recall that the bourse is really just mining and banks. Our “lost decade” as it were.
Macquarie might want to revisit the question why it is that the ASX is trading at a discount to its long term average today, as well as being so far below the value of the US? It ain’t owing to our better outlook!
So, if you’re looking for growth in an economy and your wealth we at MB suggest you look elsewhere. We can aid you with that with the launch of the MB fund later this month, which is allocated 70% to international equities.
Better that than fantasy.
Register your interest today (if you have not already):
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
Australia’s sharemarket could jump by as much two thirds over the next decade, underpinned by a booming superannuation sector and the nation’s status as a “growth haven”, according to a new report by Macquarie Research.
