ASX Economic Analysis: It's Time to Buy Shares
Equities give investors growth and increasing dividends plus you can get your money out when you need to.
If you are interested in learning more about the Blue Chip Stocks and how to invest in this area, read more here.
EQUITIES ARE STILL THE PLACE TO BE
Looking through the big headlines around the US credit rating and the shellacking delivered to the Australian dollar this week and it’s clear, equities is the place to be. Don’t get me wrong, there are troubled spots, but there remains the prospect of growth and increasing dividends, on top of which, you can get your money out when you want it, no matter what the state of the economy.
This was the lesson of the GFC where the share market was the one place you could get ready cash. Fast forward to today and the commercial property sector is in deep trouble due to a lack of liquidity. Try selling your own house, let alone a building. Investors in the unlisted office-property funds of ASX listed Charter Hall can’t get all their money out. It’s a problem around the world, just ask the Chinese. In property, it’s all good, until you actually need the cash.
Equities, on the other hand, represent returns beyond simply dividend income. In this report, read how BHP Group (BHP) has growth from copper to look forward to, on top of being a world leader in iron ore, and how the Hermosa project in the US of fellow mining giant South32 (S32) is on track to deliver huge production in critical minerals, even after a US$1.3bn write down. Then there is that troubled contractor Downer (DOW), which this week announced its own big write-down. Once you look through the non-cash write-off you will see that this company is spinning off a mountain of cash, from which to pay dividends. AMP Limited (AMP) continues to hang in there and is supported by its discount to book value.
If the market does hit the skids these are stocks you want to buy more of. This is particularly the case with Macquarie Group (MQG) where the opportunity to buy the stock at value prices is rarer than one of its executives going to Centrelink. At its AGM in July, Macquarie reported a substantial drop in first-quarter profit and a small reduction in its capital ratios caused partly by the purchase of an amazing $1bn+ shares on and off the market to meet employee awards after a record FY23.
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SUMMING UP THE ECONOMIC NEWS
Simply put, the RBA paused on raising its overnight cash rate from 4.1% just after the Fed Reserve had hiked its overnight rate 25 basis points (0.25%) to 5.25-5.5%. That differential alone, on top of the stronger for the longer outlook for inflation means that domestic interest rates will not go down any time soon. The US and Australian government or treasury 10-year bond rates have both increased to around 4.1%, which underscores this point.
What put the Australian dollar over a cliff was a combination of stronger jobs data in the US and a downgrade by the Fitch rating agency of the US credit rating AAA to AA+ and the issuing of more US treasury notes than expected to fund their ballooning deficit.
Markets have reacted, pushing bond yields higher and equities lower, the latter after some steep increases this calendar year.
ANALYSIS: THE MIRACULOUS SOFT LANDING HAS COME TO PASS
We were right last year in our analysis that interest rates were going to increase more than the market expected. We have been lucky that the much fabled soft landing (interest rates and inflation have peaked, low unemployment and moderating growth) has come to pass, albeit with inflation being stickier than economists would like. The RBA and other central banks are adamant that inflation will return to the 2-3% band in the coming months, but this requires a big leap of faith. Certainly, the supply side seems to be settling down because those nasty supply-chain problems are easing. On the demand front, there is some easing, but unemployment is still very low and property prices remain high. The likelihood is for inflation to remain at 3-4% for longer and interest rates to remain elevated for the foreseeable future. The biggest factor causing all this is probably deflation in China.
The Australian finance sector remains a growing market with increasingly attractive dividends. Learn more on how to time the market using greater insights to making a return.
Volatility in the normally stable asset class of currency is never a good sign. This means that caution is required. The British wartime saying “Keep Calm and Carry On” comes to mind. Stick to the plan and look for assets on the cheap. Collect your dividends. Don’t go chasing rainbows (if that’s the expression). Access our favourite ASX Small Cap Stocks today. Join Today!
Domestic Australian stocks look to be good value and any market sell-off provides an opportunity. Look to accumulate the stocks listed above when this happens. Follow our recommendations. The big opportunities in this market are in Small Caps, which is why some of our tips are spiking at 50% and more. It’s not a coincidence that there are so many takeovers in our Small Cap stocks, which are the real deal (earnings wise) and cheap.
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