There was something to be positive about as ASX companies were posting record profits and paying windfall dividends, with Hamish Tadgell noting that the companies were looking to take advantage of conditions unique to the COVID-19 pandemic.
“A key theme of the reporting season has been the strength of corporate balance sheets. Companies quickly returned cash in the form of higher dividends and share buybacks, ”he said.
“With rates at record highs and a lack of alternative investment opportunities, much of this liquidity will potentially find its way back to the stock markets.”
Australian businesses were boosted by pent-up demand, Tadgell said, as international borders were closed and the second half of the year largely spared lockdowns.
“Too much money for too little merchandise has been the keystone of the past 12 months,” he said.
“The resurgent demand that is met with supply disruptions and capacity constraints has resulted in higher prices and profits for companies able to meet the demand, and asset prices more generally. “
Now, with the increasingly available vaccines and the roadmaps for current lockdowns becoming clearer, Australia is entering uncharted territory of ‘living with the virus’.
“This is something we haven’t experienced, and it’s unclear how it will impact confidence and behavior,” Mr. Tagell said.
Commenting on what this means for investors, Mr Tadgell pointed out that the step into the unknown would pave the way for potentially higher levels of volatility in the months to come.
Currently, perceptions are mixed on what the easing of lockdowns will mean for the Australian economy.
NAB’s Morning Call podcast host Phil Dobbie had suggested that “life will get back to normal” after the lockdowns are over.
Meanwhile, CommSec said “there is still an expectation that it would still be a few tough months to come (after the restrictions are eased) and that it will not be a simple affair once that is also the case”, the day of the news.
Mr Tadgell has chosen to stay on the cautious side, suggesting that investors actively manage their risk for a return to foreclosure conditions while seeking to capitalize on opportunities as they arise.
“For us, this means tilting the portfolio more towards companies that will benefit from the foreclosure and being active around these opportunities, but also staying disciplined to invest in quality activities where there is a margin of safety,” he said. declared.