Edition #42
5 December 2001
Dr. Shane Oliver
Head of Investment Strategy and Chief
Economist
AMP Henderson Global Investors
Glimmers of Light – the global (and Australian)
economy since September 11
It has been almost three months since the September 11
terrorist attacks on the US, which is probably enough
time to provide an initial assessment as to the initial
impact of the attacks on the US and global economies.
Firstly, financial markets are pointing to stronger
conditions ahead. Since their post terrorist attack lows,
share prices and bond yields have risen. Equities have
behaved pretty much in line with their historical
experience following crisis events. An initial and sharp
fall in share prices (and bond yields) has been followed
by an equally sharp rebound as investors have returned
to stocks and sold bonds. As is usually the case after
crisis events, equity markets have climbed a “wall of
worry” dominated by ongoing fears of more
terrorist attacks, war in the Middle East, economic
uncertainty and more profit downgrades. The driver,
as is often the case in the post crisis rebounds (and
indeed most recoveries during recessionary periods) has
been investors chasing improved valuations supported
by very low rates of return on alternative investments
(namely cash and bonds).
Given their tendency to lead the economic cycle, the
fact that stocks have rebounded sharply from their
September lows in itself augurs well for the future.
From their September lows to their most recent peaks,
the US market rose 23%, Europe rose 38% and
Australia (which never fell as sharply) rose 17%. Of
course this provides no guarantee as equity markets
have been known in the past to get it wrong. A similar
rally (+22% in the US) between March and May this
year was then followed by further weakness.
Secondly, many of the drivers of the US (and now
global) downturn have reversed themselves or are in
the process of doing so. The drivers include the rise in
interest rates and oil prices in 1999-2000, excessive
inventory levels, the sharp fall in share prices and over-
investment in several key sectors (such as IT). In
particular:
· Interest rates are now at levels not seen since the
early 1960s;
· Energy costs (notably oil) have also fallen
substantially over the past year. Lower energy
prices boost growth by lifting corporate profit
margins and boosting consumer spending power;
· The detraction to US growth from a run- down in
inventory levels has largely run its course. If
anything, inventories are likely to add to US growth
going forward; and
· US equities have gone from being very expensive
to now being neutral/cheap (implying a sharp
reduction in the risk of a further loss in wealth from
this source).
Added to this, the fiscal stimulus now coming through
in the US will be the largest seen since the Reagan tax
cuts in the early 1980s. Combined, these developments
point to US/global recovery commencing around the
June quarter next year.
Thirdly, and perhaps most importantly, the economic
dataflow out of the US, Asia and Australia over the past
3 months has not been nearly as bad as was feared a few
months ago. Arguably, there are even some glimmers of
light. While the same cannot be said of Japan and
Europe it should be noted that they are essentially
following the US and one should not look for either
region to pull the world out of recession.
Turning first to the US economy, economic data
relating to the period straight after September 11 was
uniformly bleak. Consumer and business confidence fell
sharply. Retail sales and new orders for capital goods
collapsed. Unemployment claims spiked sharply higher.
However, since the initial “shock affected” period there
has been some stabilisation/improvement. In particular:
· Retail sales rebounded sharply in October. While
driven largely by a 28% rise in auto sales on the
back of zero rate financing it did prove that US
consumers do still respond to low interest rates
(unlike their Japanese counterparts). The size of the
rebound in retail sales in October, combined with
evidence that auto sales have held up in November
(Ford is apparently planning to lift production in
the March qtr), has even raised the possibility that
December quarter GDP growth may actually be
positive;
· Unemployment claims have drifted back down;
· The Conference Board’s US Leading Indicator
came in stronger than expected in October;
· Durable goods orders rebounded sharply in October
after a sharp fall in September;
· Sales and orders for semiconductors appear to be
stabilising and DRAM (memory chip) prices have
seen a good bounce in recent weeks;
Semiconductor Sales
-150
-100
-50
0
50
100
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02
World US
Qtrly % change, annualised
· The US NAPM business survey composite index
rebounded sharply in November. The New Orders
component even got back to near the breakeven 50
level. Both measures could still be described as
being in an uptrend from their low point back in
January.
US Business Confidence
35
40
45
50
55
60
65
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02
NAPM Composite(RHS)
NAPM New Orders
· Another positive sign is that housing prices in the
US are continuing to move higher (up 1.7%
nationally in the September quarter and up 8.4%
over the past year). This is far more important for
consumer wealth than share prices and is supportive
of US consumers continuing to spend.
Whilst it is debatable how significant or durable these
signs really are, the point is that the US economy has
not collapsed after September 11 as many had feared,
and is arguably starting to look a little stronger.
Non-Japan Asia has been hard hit by the US downturn,
being particularly exposed to the global IT slump via its
exports. However, recent export data for Taiwan,
Singapore and Korea are showing signs of a trough with
improvement evident in both IT and non-IT exports.
The region as a whole is also starting to benefit from a
more favourable movement in its terms-of-trade, with
oil prices having fallen and DRAM prices turning up.
Korean economic data in particular is looking more
promising, for example September quarter GDP growth
came in stronger than expected.
Looking at Australia, apart from an initial blow to
confidence from the terrorist attacks and a slump in the
tourist sector (made worse by Ansett’s demise), so far
things appear to be motoring along at a reasonable pace.
Growth was a solid 1.1% in the September quarter and
so far this year it has grown at an annual rate of 3.9%.
More to the point, this is likely to continue for a while
yet. Consumers are continuing to spend (evident in a
1.3% rise in retail sales in October), business
investment plans have strengthened (albeit narrowly
based on the mining sector), government spending is
robust, and housing construction activity is just starting
to pick-up.
Conclusion
Several points emerge from this brief survey of
economic and market developments post the terrorist
attacks. The first is that the US economy has proved far
more resilient than was feared at the time. The second is
that there are glimmers of light in some areas
suggesting that we may be getting closer to the trough
in global activity, for example, US Leading Indicators,
semiconductor orders and Asian exports. Finally, as has
been the case though most of this year, the Australian
economy is continuing to perform exceptionally well.
While none of this precludes a correction in equity
markets (or a further fall in bond yields) after their
recent sharp rises, it offers hope that it won’t be any
more than that and that the rally generally will continue
into next year.
Dr. Shane Oliver
Head of Investment Strategy and Chief
Economist
AMP Henderson Global Investors
Ich hätte dann noch im Angebot: SwissLife / DIT / CSAM / Putnam / UnionInvest / Metzler / Morningstar / JP Morgan / AXA / Fidelity / ...
@Siegertrade: sag an was du brauchst, damit kannste bestimmt dann 25 Seiten voll machen ... und ich muß die anderen hier nicht langweilen ...
MaMoe ...
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