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Newsletter 09/2020

The John Dory from Dubai and Beyond | Dollars and Dirhams

 

Dollars & Dirhams by Atlas Wealth Management

Welcome to our first edition of Dollars & Dirhams. The current world events have contributed to volatility in the equity, currency and property markets that we have not seen for many years. We hope that our comments provide you with some transparency on what is occurring in the respective markets and what we can expect in the coming months.

Equity Markets

Australian equities lagged the rest of the world, given the dour short-term outlook for the economy with the bulk of Australian companies reporting their end of financial year results.

The ASX 200 gained 0.5% over the month (total returns) with the defensive sectors of consumer staples (3.3%)  and technology (4.6%) showing the best gains. The materials sector (5.8%) was also a strong performer thanks to the rising iron ore price and positive outlook in China.

Emerging markets led developed ones last month. The MSCI EM index was up 8.2% in local terms. Asian (MSCI Asia ex-Japan) markets performed well, given the better control of the viral spread, rising commodity prices and a falling U.S. dollar.

In developed markets, Europe once again stood out as the European Union agreed on a EUR 750bn recovery fund and took another step towards fiscal union. However, this did not translate to equity returns and the MSCI Europe was down 1.4% over the month.

Property Market

CoreLogic reveals that Australia’s property market is experiencing a fourth consecutive month of COVID-induced price falls, with home values dipping by 0.4% in August.

Even where housing values are trending lower than their pre-COVID highs, the rate of decline over the past two months has eased.

However the true extent of property value declines won’t be fully realised until we see a wind up of the government and banking initiatives that are artificially supporting the property market. These include the mortgage deferral, rental eviction moratorium as well as the JobKeeper payments

To date 11% of all Australian mortgages are deferred and it is not until we see a resumption of normal banking terms will the market see to what extent mortgage holders are able to resume their repayments and who needs to sell as a last resort.

In the last two weeks two bank senior executives have publicly stated that they are actively recommending clients sell property due to their inability to service their loans. It must be said that this is a first in the markets history where multiple banks are recommending clients sell.

Currency Market

The Australian dollar finished the month of August at 0.7366 a level that was last seen in December 2018. The recent strength was on the back of overall weakness in the USD and a surge in commodity prices.

With the release of the Fed Chair Jerome Powell’s speech at the Jackson Hole Monetary Policy Symposium, he said that the U.S. central bank would seek to keep inflation at 2%, on average, so that periods of too-low inflation would likely be followed by an effort to lift inflation above 2% for some time.

Short term expectations of the AUD would be to remain at the current levels with the possibility of further slight increases should commodity prices increase and/or we see further weakness of the USD on the back of successive quantitative easing out of the United States.

 

Brett Evans 
Managing Director – EMEA
Atlas Wealth Management (DIFC) Limited

 

M: +971 526 371 274   Ebrett.evans@atlaswealth.com | Wwww.atlaswealth.com

 

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