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The Budget and some “Re-opening” trade ideas

October 7, 2020
Tim Young

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The Budget and some “Re-opening” trade ideas

Before being blindsided by Covid-19, Australia had experienced around 30 years of economic “good times” which was stopped dead in its tracks sometime in May this year. During these “good times”, output and household income had doubled.

Before being blindsided by Covid-19, Australia had experienced around 30 years of economic “good times” which was stopped dead in its tracks sometime in May this year. During these “good times”, output and household income had doubled.

In 1991 Australia’s per capita income was behind both Japan and the U.S. By 2018 we exceeded both countries. By 2019 the average Australian had almost seven times the wealth of Australians in 1991. Distribution of this wealth was a lot more unequal.

From 2009 to 2019 however the increase in the average income of Australians had started to slow and by 2019 had increased a lot slower-than-compared to its previous decade. So even prior to Covid-19 our economy was starting to show signs of slowing down. Despite this we still had a low unemployment rate of 5.2% and our living standards were at their historical peaks.

The federal budget released last night is being branded as one of the most important since WWII. It will include personal and business tax cuts that were originally proposed for 2022 being brought forward to be back-dated to July 1st 2020. See tables below:

 

 

This budget is all about kick starting the economy via spending. This along with the State borders starting to re-open it is time to start looking at where you can invest and capture the upside of the receiver.

In manufacturing the government is focusing on 6 sectors:

  • Resources technology and critical minerals processing;
  • Food and beverage manufacturing;
  • Medical products;
  • Clean energy and recycling;
  • Defence industry; and
  • Space industry.

 

These areas will benefit from co-investment in large projects, grants for transformational investment in technologies and processes, as well as supply chain resilience. So look for stocks associated with these sectors. 

For example, if you wanted to look at the “resources and technology sector,” it might be worthwhile to look at stocks that fall within the below resource sectors that are closely linked to current and future technologies.

So within the Australian resource landscape, companies that are within the sectors mentioned below: 

Australia:

  • has the world’s third largest reserves of lithium and is the largest producer, of lithium in the world
  • is ranked sixth in the world for rare earth elements and second for production, yet many of these deposits remain untapped
  • has large resources of cobalt, manganese, tantalum, tungsten, and zirconium.

Some of the industries most impacted by the pandemic and the subsequent lockdowns are airlines, airports, tourism and retail, but these could all benefit from the country reopening and may be worth considering as a future investment opportunity.

 

Sources:


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