Before entering financial markets, it is extremely important to consider the global macroeconomic outlook that is bound to affect not just stock markets, but all financial assets – both in the short and long term. An investment strategy can then be formulated based on this research and your risk profile.
Globalisation, like every other phenomenon, comes with both pros and cons. The interconnected and interdependent nature of global economies and markets means that the ASX is exposed to the ups and downs of global markets. As the old saying goes, when american markets sneeze, the ASX catches a cold.
Let us have a look at 4 things that may affect asx share prices in the near future:
Australia – China Political Stand-off
Political risk is extremely bad for markets. The relationship between Australia and China has deteriorated in recent months. Australia’s criticism over the origins of the coronavirus has resulted in China retaliating by banning Australian exports of certain commodities.
For the sake of most businesses, we hope the two governments can work out their differences. However, it does not look like happening anytime soon.
The trade tensions have affected two sectors that are extremely vital to Australia – Energy and Consumer Products. China’s ban on coal and commodities such as beef, wine, barley, cotton, and lobsters have dented the near term future of several ASX listed companies that have taken advantage of the demand from China’s growing middle class recently.
ASX shares as a result have been affected and the trend may continue as it looks likely that these tensions will escalate in the coming years.
Biden’s Climate Change Focus
Trump’s time as the president of the global leader has resulted in a complete disregard for the environment. The threats of climate change are real – so much so that the future of our planet is at stake. Australia’s Morrisson government has to now make a decision if they would commit to a net zero emission by 2050. An acceptance to the plan will go well with Biden’s policies to ensure that no trade tariffs are laid on the non-renewable energy export sector that Australia is so dependent on.
In the broader scheme of things, coal and other non-renewable industries will decline gradually. More importantly, we will see more investment coming into the renewable energy sector – and we may see certain asx shares benefiting from this trend.
New US Stimulus
A new economic package is on the cards in the US early next year. A democratic win means that this package will be bigger than what the Republicans would have unveiled. The economic package will add stimulus to a lot of sectors and industries in a desperate bid to revitalise the economy. While the sectors that will benefit remains unclear, the stimulus would definitely result in goal prices going up again.
Quantitative easing hampers currencies and USD has an inverse relationship with the price of gold. A weakened dollar will thus mean a higher gold price.
High gold prices mean increased profits for gold producing firms, and we have quite a few ASX shares that will stand to benefit from this.
Impact of Increased Spending During Holiday Season
Christmas – New Year always brings increased spending. While the current state of the economy has resulted in a decline in the e-commerce sector and overall consumer spending, the government has been doing everything it can to boost consumer spending since it is extremely vital for the planned economic recovery.
Increased spending will mean higher sales and higher profits for the retail and consumer staples sectors. In addition to the retail and consumer staples sectors, Australia is also home to the high-growth BNPL sector that will certainly benefit from this demand. The nature of business of the BNPL players ensures that they can take advantage of this increased spending not just in Australia, but also in markets that have a much larger consumer base such as North America and Europe. Hence, quite a few ASX shares are set to benefit this quarter ending December.
Conclusion
As we said earlier, it is vital to consider macroeconomic factors when looking for stocks to invest in. At Shares in Value, our analysts also publish reports that analyse specific sectors in addition to considering macroeconomic and industry trends in our equity analysis of ASX shares.
