ASX listed fund managers agree Australia’s done well out of COVID-19 but remain uncertain about whether markets will take well to stimulus measures being withdrawn.

COVID-19 led to unprecedented stimulus measures such as record low interest rates and heavy levels of government spending to minimise the damage of lockdown laws on the economy.

While it is difficult to quantify the overall impact, some sectors have done well, such as the construction and lending sectors. For other sectors, such as furniture retailing, the boredom of locked down consumers was enough of a stimulus.

But what will happen when this stimulus is withdrawn?

ASX fund management companies say it is anyone’s guess. The fundies are currently releasing their half yearly results to the market accompanied with an update on their performance.

One such company is Argo (ASX:ARG) which this morning announced a $67.4 million profit, 43 per cent down on the prior corresponding period – but that investment performance was up 12.3 per cent.

Argo noted that Australia had done better than many other countries. But the stimulus had played its part and it wouldn’t just be a case of turning off a tap.

“Despite numerous and ongoing state border closures, Australia has continued to fare well both economically and in the fight against COVID-19,” it said.

“Economic growth has rebounded and the outlook has improved with the economy likely to continue to benefit from ultra-low interest rates and strong commodity prices.”

“However we are also cognisant of potential challenges arising as unprecedented stimulus measures are unwound and the Australian and global economies transition to a new normal.”

 

Outlook ‘unclear’ but trajectory of debt markets critical

Another was Switzer – specifically its ETF the Dividend Growth Fund (ASX:SWTZ). It said markets were going well but it remained to be seen if they still would dance when the music stopped.

“There is little doubt that equity markets are pricing a benign outlook for interest rates, with a slow and steady rise being acceptable compared with a breakdown in the debt markets and much higher rates,” it said.

“On the other hand, there is also the possibility that growth again slows, the stimulus package proves ineffectual and interest rates decline.

“The actual trajectory of debt markets over the next few months remains critical for the performance of the equity market and the leadership within the market. At this stage the outlook is unclear.”

 

Dividends may recover

Both ASX fund managers remained confident that dividends would return.

Dividend paying companies have been harder to find as traditionally reliable payers cut or held back on making shareholder payouts during COVID-19.

Switzer said dividends were subject to continued recovery but declared that “we are past the worst of the dividend drought”.

“There is a likelihood of significant dividend growth over the next couple of years and we look forward to the February result season for positive signs that dividend growth is commencing.”

Argo meanwhile simply said that it was “encouraged by the prospect of company dividends to shareholders beginning to recover”.

It was able to use cash reserves to pay an interim dividend of 14 cents per share, only down 12.5 per cent on last year.

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