Weekly Wrap by Pythagoras investing for 2 February 2019

Meanwhile in Australia the bush fires rage and as the mercury soars we have reporting season beginning to make itself felt.  Reporting season is underway and our markets are now a little expensive if earnings growth doesn’t shine through to justify the price moves.  We expect some pretty harsh reactions to those who don’t “deliver on earnings growth”.  Overexuberance is always met with a reaction at critical times like profit reporting – which brings those overhyped situations back to earth.

Sectors hardest hit near term from the bush fires are retail, insurance, and transport. Resources, building materials and infrastructure sectors will be less affected but the rebuild which will follow will contribute to these sectors, albeit with a lag.

The coronavirus is growing rapidly and will effect tourism, travel and education particularly in Australia.  Anecdotally we note that normal Chinese New Year celebrations have been cancelled and corporate travel has started to be deferred.  I wrote about the potential for overreactions last week – it is beginning.

The RBA has cut rates 14 times since November, 2011.  In Australia we are plagued with low levels of consumer confidence but at least our unemployment rate is near low levels.  We are of the view that there isn’t any real benefit for reducing rates further. 

Watch for the swings in prices – we suspect there will be some considerable price moves as fears play out.   

Michael Dee, Director, 0419 726223

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