What’s 2020 Bringing In For You As An Investor; Themes That May Benefit

  • Nov 30, 2019 AEDT
  • Team Kalkine
What’s 2020 Bringing In For You As An Investor; Themes That May Benefit

December is approaching and the year is going to end in just over a month. The festive season is rolling, and Black Friday has just passed, we hope you had some fun time in your shopping spree.

In markets, we have witnessed a relatively less volatile year as of now in comparison to the previous year. As you can see in the below monthly chart of the S&P/ASX 200 VIX Index, the volatility levels have been much lower when compared to 2018.

Monthly S&P/ASX 200 VIX Index in Last Two-Year to October 2019 (Source: Thomson Reuters)

In 2019, the S&P/ASX 200 index also broke its record of all-time high closes, and the most recent all-time high close for the index was recorded on 28 November 2019 after the index closed the session at 6,864 points.

The US-China trade conflicts have depicted an optimism in the recent past, and market participants are expecting that the phase one trade deal is likely to get through before the next year.

In the UK, the British are gearing up for the general elections, and the politicians have been running campaigns with much vigour. The results and the tone of the upcoming government are likely to impact market sentiments in the near-term.

According to the polls by media houses in the UK, the Conservatives Party is leading the race, followed by the Labour Party, Liberal Democrats, Green & Brexit Party. The general election is scheduled on 12 December 2019, and the results are anticipated in the early hours of the very next day.

Any positives from the results could help lift the uncertainty around the capital allocation for investors and corporations. And, the next event post-elections would be the introduction of the legislation to complete the much-awaited Brexit.

Policymakers in Australia

We are almost approaching the completion of the six-month period since the initial cash rate-cut was announced by the Reserve Bank of Australia in June this year. And, the lag impact of monetary policy is likely to be seen in the near-term.

What if the present-day monetary policies were not effective enough to work-out an expected outcome? Well, as we are not into policymaking, so it is something that Central Bankers have to look at.

However, there are other measures as well to produce an expected outcome in an economic sense; fiscal policies could have much wider ramifications in a shorter period of time in comparison to monetary policy.

It appears that it was the perfect timing in July this year when the Commonwealth Government introduced the first wave of targeted tax cuts of its $158 billion tax cuts plan over the next seven years. In the meantime, RBA slashed the cash rate.

And, maybe the combination of tax cuts and a cash-rate cut have helped market participants to witness some green shoots in the housing markets- as post these two developments, we have witnessed rising housing prices in the country, indicating a pick-up in demand.

Meanwhile, the economic circles in the country had voiced out opinions to bring forward the scheduled tax-cuts of 2022 to next year. If this development was to be passed by the Commonwealth Government, it might have widespread ramifications to the consumer side as well as multiplier impacts of consumer demand in other industries.

Investment Themes for 2020

Infrastructure/Industrials (roads, buildings, bricks, employment, & wage)

When a government intends to lift an economy from an ongoing slowdown, the most comprehensive and efficient tool might be to increase infrastructure spending. Like we had said earlier, infrastructure stocks could be up for optimistic times in the near-term.

Infrastructure pick-up in an economy betters the conditions of an economy through its impact on employment and wage as well, and in turn, private household consumption. Meanwhile, it increases the demand for ancillary products that are utilised in infrastructure development, including bricks, cement, engineering works, etc.

Moreover, the private and public infrastructure spending helps to revive economic growth through its very multiplier impacts on an economy. Meanwhile, some of the prominent infrastructure development companies have recently racked up new contracts from public outfits in the country.

As a matter of fact, the Commonwealth Government’ Labour Market Information Portal suggests that there has been an increase in employment by around 14 per cent through construction activities over the last five-year period. And, in a similar period, manufacturing employment decreased by 4.7 per cent.

We should also note that when interest rates come down globally, it presents an opportunity for large infrastructure players to refinance the debt in their balance sheet with a lower rate, and interest outgo on the floating rate debt also falls.

Leisure, Luxury, Entertainment & Gaming (betting, wines, tournaments, hotels, luxury etc.)

As the holiday season is nearing, it presents abnormal trading days for many businesses in Australia. However, the business in gaming & wines might not disappoint even when it’s not seasonal.

In this space, Australian capital markets provide an opportunity for an investor to invest in companies involved in providing services such as hotels, tours, flight bookings, travel management, air carrier operators etc.

In addition to these businesses, some other businesses could be jewellery, affluent-class retailers, but not limited to gaming companies that are providing services backed a world-class infrastructure of tournaments in the country.

In this theme, the companies could be from a range of sector including consumers discretionary, industrials, consumer staples etc.

Housing Products (beds, furniture, fittings, electronics etc.)

Whilst we have had seen a decent a pick-up in the housing market, the businesses in the non-food retail would likely see a pick-up in the near term. As these businesses sell things that are likely to be bought by new home buyers.

However, considering the lag impact of monetary policy and a possible lag in delivery of new dwellings might not depict green shoots in almost five-months into tax-cuts and interest rate cuts.

According to retail trade data by the Australian Bureau of Statistics, in September 2019 quarter, the trend estimate for household goods rose by 0.2 per cent. And within household goods, the electrical and electronic goods retailing increased by 0.5 per cent while furniture, floor coverings, houseware and textile goods retailing were flat or negative.

One thing we should note here is that the economic data is a picture of the past and not the prevailing state of an economy.

Restructured companies (mergers, strategic partnerships, demergers etc.)

Of late, the Australian capital markets have had witnessed substantial activities related to corporate restructuring, and the potential optimistic outcomes of corporate restructuring might show signs of activities undertaken.

Meanwhile, there are a number transactions of in the pipeline as well. In light of some transactions, we have seen a pretty successful demerger of Coles Group Limited (ASX: COL) and Wesfarmers Limited (ASX: WES).

Woolworths Group Limited (ASX: WOW) is set to undertake an interesting restructuring in the near term in a bid to create a new entity dedicated to its portfolio of hotels and liquor business. And, the demerger of Cardno Limited (ASX: CDD) and Intega Group Limited (ASX: ITG) was completed in the recent past.

In the media & entertainment space, the consolidation is ongoing since a few years now, and the industry is evidently repositioning in a bid to navigate effectively amid a slowdown cum disruption.

Among the latest, Prime Media Group Limited (ASX: PRT) and Seven West Media Limited (ASX: SWM) announced their plans to undertake a merger. Meanwhile, the industry had witnessed the emergence of a large scale player through the merger of Nine Entertainment Co Limited (ASX: NEC) and Fairfax Media Limited (ASX: FXJ).

In addition, there has been an immense number of strategic partnerships in the Australian capital markets. And, the above-mentioned examples could be just a trailer of what the ASX is offering presently. There are areas that are not covered here, including healthcare equipment, AI-backed disruptive technologies, and plethora of diversified financials.


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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

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