Crispin Murray’s weekly outlook for Aussie stocks

Pendal's head of equities Crispin Murray


Pendal’s head of equities Crispin Murray (pictured) outlines how the latest COVID-19 developments are impacting the outlook for Australian equities.

Quick take-outs

  • Markets held up relatively well despite worse COVID-19 case and hospitalisation data last week.
  • Australia’s probability of suppressing the virus has taken significant step back, impacting Real Estate Investment Trusts and domestic cyclicals
  • Liquidity is still clearly prevalent as the NASDAQ hit new highs, driven by the FANGMAN stocks (Facebook, Amazon, Netflix, Google, Microsoft, Apple, Nvidia) and others. Tesla is up some 60% in two weeks. The Chinese market has also broken out – Ali Baba is up 21% in two weeks.
  • Commodities are performing well, reflecting their real asset status
  • The on-going disconnect between economy and markets continues. This is a distortion created by fiscal stimulus propping up spending and central bank actions underwriting government and corporate bonds – and effectively equities.

This accelerates structural trends supporting growth stocks in the market, with their higher weightings in indices, momentum created by passive funds, active funds forced into growth – and now day traders.

The key is to build portfolios that are able to hedge enough of this rotation. An important part of that is positioning right now in real assets, notably gold.

Australian focus is on Victoria

The big issue for investors is rationalising the fact that markets are still behaving relatively well despite negative headlines and case surges.

The focus is on Victoria – which represents 25% to 30% of national GDP – and assessing the risk of this surge affecting consumer confidence in other States.

It is right to be concerned about the near-term effect on the market. But we can see in Brazil and the US that markets can easily disconnect from poor COVID case data. These markets continue to rally as case numbers spike.

The number we are paying closest attention to right now is the positive test rate, which has continued to rise.

However, there is a ramp-up in the amount of testing in Victoria, which is critical in preventing new outbreaks from building. When this number rolls over it will be the first sign that things are improving.

US health system stability is a key issue

A key question in the US is the severity of strain on hospitals and the associated impact on death rates.

Hospitalisations are moving higher with a two-week lag. It’s becoming apparent that the south of US is effectively following the Swedish approach of “controlled spread”. It is unlikely we will see a significant reinstatement of lockdowns.

The US hospital system is still largely coping – Phoenix and Houston are the two worst-affected areas. Elective surgery has been suspended in Texas and some big city hospitals in Florida and California. Capacity is still available though.

Some of the market’s apparent ambivalence can be explained in favourable statistics (which will need to be watched carefully).

For example the US death rate for hospitalised patients has dropped from 20% to 10%. The rate peaked at 25% in New York and has since dropped to between 5% and 10%.

Treatment techniques have also changed, leading to fewer patients on ventilators – down from 25% to 15%. A slower rise in death rates may result from wider use of facemasks, more testing, improved awareness of safety protocols in nursing homes and younger patients.

Global growth signals

It’s clear the economic V bounce is slowing in the US. But other global growth signals are holding up reflecting China’s recovery (copper), strong housing (lumber prices) and ample liquidity.

In fact, liquidity is overwhelming other factors. The world’s two biggest economies, the US and China, have increased money supply 18% year-on-year. This drives financial assets and supports parts of the economy such as housing.

The Chinese market has broken through a five-year down-trend and US mortgage rates are making new lows as a result.

Bull case vs. bear case

The bull case narrative for August/September centres on these potential outcomes:

  • Decelerating cases in US
  • Death rates remaining lower
  • Vaccine progress
  • Large US fiscal stimulus
  • Resumption of Fed balance sheet expansion

Meanwhile the bear case scenario looks like this:

  • US economy goes into second effective shutdown as death rates follow hospitalisations
  • Consumer confidence slumps
  • US economy stalls as the market loses confidence in policy-makers’ ability to do enough
  • Growth stock premiums begin to unwind


Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds. He manages a number of our flagship funds along with one of the largest equities teams in Australia.

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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