The last 12 months proved to be somewhat of a rollercoaster for investors. Unfortunately, the outlook for 2020 is more of the same. Here are four factors that are likely to have a significant impact on our economy and investor decisions over the coming year.

1. Record-Low Interest Rates

In 2019, Australia’s interest rates dipped to a historic low of 0.75 per cent. But don’t expect rates to bounce back any time soon. According to the ABC’s Stephanie Chalmers, people are choosing to pay down debt or increase their savings with the extra cash from interest rate cuts, rather than spending up big and stimulating the economy. In fact, of the 11 economists surveyed by Chalmers, 9 expect more interest rate cuts in 2020, taking the cash rate to 0.25 per cent by the end of the year.

Investors are starting to turn towards the share market in the hope of making a decent return, causing share prices to hit record highs, says IG Markets Analyst, Kyle Rodda. “When you’re in an environment where liquidity is likely to be increased, that cash has to go somewhere. Money is cheap, quality [of stocks] is reasonably good, so people are forced to chase returns in riskier assets, trying to find any return they can.”2 Expect greater interest in diverse portfolios and a continuation of the move away from cash.

2. US Politics

In 2019, Australia’s economy was not immune to the political whims of US President Donald Trump, such as his decision to launch a trade war with China – our largest export partner. Although tensions seem to have de-escalated, there is still potential for the President to change his mind. “Trump’s trade war weakens the global economy. And that in turn, dampens demand for what Australia sells to the rest of the world, from resources to education and tourism,” wrote Jacob Greber, in the AFR last year.3
Similarly, the current Iranian tensions have led to spiking oil and gold prices and a weakened Australian dollar. How these events continue to unfold is anyone’s guess, but there are significant implications for Australia if the US and Iran go to war. The Australian Strategic Policy Institute has highlighted that Australia has one of the smallest stockpiles of oil in the world. “So, if Iran acts on its threat and disrupts the flow of one-fifth of the world’s seaborne oil supply, the world has a problem… With only around three weeks’ supply on hand in Australia, we are the most vulnerable of 25 countries in Asia.”

3. Impact of Bushfires

The unprecedented (and still ongoing) bushfire crisis will certainly impact Australia’s economy, with the Federal Government already announcing it is no longer focused on delivering a budget surplus.

AMP Capital’s Chief Economist, Shane Oliver, told Money Management he believes Australians will be less motivated to spend when their fellow Aussies are suffering and therefore, we’re likely to see further negative disruption to economic activity.

4. Health and Environment Opportunities

Many investment analysts are predicting a rising interest in health stocks and the ESG market. Over the past 10 years, the value of Australian healthcare stocks skyrocketed by 500%, reports the ABC. “In our experience, healthcare companies are high quality, consistently delivering growth and returns,” Tribeca Investment Partners’ Jun Bei Liu told the ABC.

Meanwhile, the bushfire crisis could well prove the tipping point for action on climate change, prompting investors to throw their support behind green energy. Flexibility of portfolios and greater control over investments could prove to be the main driver of investor decisions in 2020.

5. Coronavirus

It’s too early to tell exactly how this will impact investors, but we will bring you an update next month.