The New Year is here and 2020 is shaping up to be an interesting year for investors. What should investors be looking out for as they keep an eye on their portfolios?
1. 2020 US election
Analysts anticipate that the lead-up and the outcome of the US Presidential Election will have a significant bearing on global markets. In its 2020 global outlook, Goldman Sachs called it “the single biggest event of 2020”. There are two factors which may have an impact. First whether, the US-China trade dispute will be resolved in the months preceding the election. UNSW’s J.W. Nevile Fellow Tim Harcourt has predicted a resolution to the US-China trade war before the US 2020 Presidential election in November saying President Trump wishes to show a victory to the swing states that he won over Hilary Clinton in 2016. The Reserve Bank of Australia (RBA) and other bodies have cited the ongoing dispute as impacting significantly on global markets.
The second factor to watch out for is whether the Democrats will control both the House of Representatives and the Senate, therefore allowing a partial repeal of 2017 Tax Cut and Jobs Act which cut the income tax rate from 35% to 21%. Goldman Sachs’ strategists estimate a full repeal would reduce S&P 500 earnings in 2021 by 11%.
Both of these factors may have a stimulatory effect on global growth, with J.P. Morgan forecasting a recovery to “above-trend global growth” in 2020.
When: November 2020
2. Adoption of open banking
The Consumer Data Right (CDR) or ‘open banking’ will commence for the Big 4 banks in July 2020. The CDR will give consumers greater access to and control over their data and improve consumers’ ability to compare and switch between products and services, encouraging competition between service providers.
Open banking was initially due to commence in February 2020. However, the Australian Competition and Consumer Commission (ACCC) announced an updated timeline in December to allow for additional testing and implementation work.
For Plenti^, open banking will provide access to more and better quality information about prospective borrowers. This will give us and our investors greater confidence in the accuracy of our credit decisioning and risk provisioning.
The later phases of Open Banking will bring more direct benefits for retail investors. It will be easier and more convenient for customers to switch between and manage their financial products, including their investments.
When: July 2020
3. The RBA’s next move
After two record-breaking rate cuts in 2019, it is worth considering what the central bank is planning for 2020. Commentators seem to be anticipating another cut, with some economists saying that could happen as early as February. Further cuts would add pressure to savers and those with funds in term deposits as some bank interest rates fall further below the rate of inflation (including on a pre-tax basis).
In announcing the December RBA Board meeting minutes, Governor Philip Lowe said the Board agreed that due to both global and domestic factors, “it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
While Governor Lowe has spoken publicly against moving to negative interest rates, other monetary levers available to central bankers include quantitative easing (“QE”, the introduction of new money into the money supply). If the RBA engaged in QE by buying bonds, this would force the price of bonds up and subsequently lower returns on bonds for investors. Investors may seek to reconsider their portfolio parameters if returns on bonds and deposits continue to decline.
When: The RBA board meets the first Tuesday of every month. The first meeting in 2020 is 4 February 2020.
4. The property market
House prices are forecast to rise by 5.4% nationally in 2020, according to Moody’s. Lower interest rates, more accessible credit and increased population growth are all driving factors behind the resurgence. Sydney is expected to lead the rise, with a 7.7% increase, followed by the Melbourne market with 7% growth. For investors and savers contemplating a housing market decline, analysts from SQM research are predicting a fall in house prices in the second half of the year, especially in Sydney and Melbourne.
As investors plan for the year ahead, it’s important to be aware of how economic factors could influence the performance of their investment portfolios. However, it’s important to remember that for most investors, they have limited control over their exposure to external macro forces, so they may wish to focus on ensuring they have a diversified investment portfolio, with a blend of assets that don’t correlate with each other, such as equities, fixed income and commodities.
^Plenti was known as RateSetter prior to July 2020.