Investment markets were volatile in June, although we ended the month on a positive note. The benchmark All Ordinaries index for the Australian share market gained by 2.2% in the month, closing June at 6,001.3 points.
The Australian Dollar once again strengthened in value, gaining by 2.9% in June, with 1 Australian Dollar buying 68.53 US cents (and ended flat for the financial year). The Reserve Bank of Australia (RBA) kept the official Cash Rate at 0.25% per annum in June. The RBA board are scheduled to meet again next Tuesday with no change expected.
Global share markets were higher in June, with the United States Dow Jones index gaining by 1.7%, the London FTSE gaining by 1.5%, the Japan Nikkei 225 gaining by 1.9% and the Hong Kong Hang Seng Index gaining by 6.4% for the month.
The end of June marks the end of the financial year in Australia. The Australian share market finished the financial year with a 10.9% decline, the worst performance since the 2011/12 financial year.
However, the financial year returns could have been much worse, as the All Ordinaries index delivered a massive 16% gain for the June quarter - the biggest quarterly gain since the third quarter of 2009. This gain came on the back of unprecedented levels of global government stimulus in response to the Coronavirus pandemic as shown below.
Total direct global government stimulus is worth nearly 5% of the global economy (and the Australian government stimulus measures are closer to 10% of the Australian economy). Lending programs are not technically direct fiscal spending, although may end up in government debt if they end up being unpaid. These programs are worth another 4% of the global economy.
The fiscal response to the Coronavirus pandemic is well above fiscal stimulus undertaken during the Global Financial Crisis and more akin to spending taken during periods of war. In addition, central banks around the world have moved to lower interest rates.
While in the immediate-term investment market fortunes will turn on the course of the virus (and the ability to contain the spread), there are strong arguments that with the level of both fiscal stimulus (i.e. government spending) and monetary response (i.e. lower interest rates), once investor confidence returns, there will be a rapid recovery in share market values on the back of these measures.
Longer-term, it is inevitable that global government debt will skyrocket from increasing fiscal stimulus. High debt (both private and government) is often identified as a major vulnerability to future economic growth. This will be a challenge that presents investors for decades to come.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.