Tech stocks hoping ‘Team Australia’ comes to the party on Budget Night
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The federal government’s delayed 2020 budget is set for October 6, and ASX investors are likely to be watching extra closely this time.
October 6 also marks the day of the RBA’s next meeting, so it’s shaping up as a big one on the markets calendar.
Particularly in the wake of the post-COVID ASX rally, which has largely been driven by historic policy support measures — both fiscal and monetary.
And UBS says ongoing support could benefit ASX-listed tech disruptors, many of which have already outperformed strongly in 2020.
On the monetary policy front, the RBA has so far resisted the idea of cutting interest rates even further.
However, recent tweaks in communication from the bank have led more analysts to conclude that if the RBA is leaning in any direction, it’s probably a dovish one.
At the same time, RBA governor Philip Lowe has also made repeated calls for fiscal spending to play an increased role in the policy mix.
And in comments to Stockhead, UBS analyst Pieter Stoltz indicated the outlook for stocks is delicately poised when it comes to the outlook for government spending.
In assessing the recent price action, Stoltz said the the market has “underestimated the near term positive impact of all the stimulus”.
At the same time, it’s “also underestimating the negative impact as the stimulus rolls off”.
Despite the July extension to JobKeeper, “we’re looking at a $70 billion fiscal cliff in Q4 of this year”,” Stoltz said. However, “economic signposts show consumption is holding on for now”.
In view of that, UBS equity strategist are maintaining overweight positions in cyclical stocks (defined as stocks which perform well in an economic rebound).
With two big policy announcements coming up, the UBS economics team also assessed the likelihood that “Team Australia” returns to action.
Such a scenario would be similar to the events in March, where the government and central bank unleashed both barrels to help keep the economy afloat.
UBS said that a coordinated policy response is “plausible”, which also placing a 50/50 likelihood on further easing measures by the RBA.
Specifically, “proper QE (quantitative easing), where the central bank intervenes directly to buy longer-dated bonds”.
Since 2017, ASX tech stocks have comfortably outperformed traditional financial services in an environment of low volatility and low interest rates.
“We think this trend will continue,” Stoltz told Stockhead.
“A low interest rate environment is better for high growth industrials than banks because banks’ net interest margins get compressed and they earn lower reinvestment income, whereas the high growth industrials have no similar macro headwinds and command a scarcity premium in a low growth environment,” Stoltz said.
“In addition to low rates benefitting growth stocks more than value stocks, we also think tech disruption is contributing to that outperformance.
Citing the example of “feature rich platforms” of Aussie fintechs, Stoltz also said the “proliferation of technology and data shows no signs of slowing down either”.
So despite a big rally in red-hot sectors (most notably BNPL), ASX tech investors will be watching closely to gauge developments on the medium-term policy outlook as well.