Q&A WITH JOHN LOCKTON – EQUITY STRATEGIST, WILSONS
In this video, we talk with John Lockton, Equity Strategist at Wilsons Wealth Management firm. Here we discuss the Australian market, including how its economy, housing market, and resources sector are tracking. Questions covered include:
- What’s your view on the health of the Australian economy?
- The Australian housing market has softened in the last 12 months. What’s your take on this?
- The Australian share market has performed very well this year, what’s your take on this?
- With high household debt, can the Australian government support a downturn?
- How important is the resources sector to the Australian economy today?
- What advice would you give to first-time investors?
Craigs: What’s your view on the health of the Australian economy?
John: I think the Australian economy is getting closer to an inflection point. We’ve had a softer period of growth for a number of years. And we’re now looking at the prospect of three changes which could well be material. Interest rates are likely to be cut. The reserve bank has come out and given us a really clear pathway that they’re changing their view. And I think that’s probably two rate cuts. Secondly, tax cuts. The returned government has part of its policy agenda as tax cuts. That’s reasonably material, starting 1st of July this year. And then the third reason to be optimistic I think, is a combination of what’s happening on the lending side for the banks – it’s going to get slightly easier to get a form of loan, and the currency. The currency has dropped and that’s generally stimulatory for the domestic economy. So things are changing – I think the soft period of growth that could be a slightly stronger tone around economic growth in the second half and in to early 2020.
Craigs: The Australian housing market has softened in the last 12 months. What’s your take on this?
John: House prices have fallen between 10 and 15% from peak to trough, over the last, call it 2 years. It’s not too different to what we’ve seen on previous house price corrections. There is an impact particularly on some of the sectors where borrowing is required to transact. I think about buying a car – we’ve see auto sales fall reasonably significantly. But outside of that, it’s been minimal impact. We’ve got a soft economy, we don’t have a recession. And I think that’s the key difference. So, from here I think the debate from an investor perspective is when do those house prices stop falling, and do we start to see a better tone to growth.
Craigs: The Australian share market has performed very well this year, what’s your take on this?
John: The Australian market this year – even with the uncertainty around this year around the election – the performance hasn’t been that different to global equities. One of the largest sectors, which has had pretty poor performance over the last three years, has been the Australian banks. And if you see those banks start to rally, it will lift the overall market I think.
Craigs: With high household debt, can the Australian government support a downturn?
John: The simple answer is yes. We are more levered at a government level than what we find in New Zealand. We took on more debt post-GFC to support the economy. On a global basis, we could go to global markets and stimulate again significantly – further tax cuts, industry assistance – if there is a scenario where there is a large needed growth shock. So it’s not a major issue in my view.
Craigs: How important is the resources sector to the Australian economy today?
John: It’s reasonably important in terms of the level of income which comes through and iron ore prices and coal prices have been reasonably buoyant this year. It’s had the double impact. We’ve had commodity prices up and unusually you’ve had the Aussie dollar down. Usually they move in the same direction. This year you’ve had the opposite – commodity prices up, dollar down. So the cash flow to Australian resource companies and the government – which has a production tax on volumes – has been very, very strong. So that’s helping our terms of trade. It’s helping more money flush through the economy. But in terms of the overall impact, I don’t want to overstate the importance of the commodities story. It’s quite a diverse range of goods and services – healthcare, financial services, tourism, education – that Australia exports to the world. So it’s not just all about red and black dirt.
Craigs: What advice would you give to first-time investors?
John: The most important advice I received, and remain a very passionate believer of is the power of compounding. It’s almost the 8th wonder of the world. Put $1 away, in to a company which is growing, which is paying dividends. And that dollar becomes $1.10, becomes $1.20, $1.30. And it’s the power of compounding, which particularly in equities can be really powerful in terms of generating investor return and building long-term wealth. So pay attention to compounding.