Market’s been on a sideways downtrend since the peak in mid-June…and what can change this?
3Q #’s are unlikely to be inspiring, given that this economy is driven by tourism and exports where the first one is reliant about domestic travelers which is perhaps ~20-30% of total spending compared to international travelers to the country and exports which are -20% this year excl gold.
So what can change? I still have these viewpoints:
- Commodities will have a great 2021…mainly due to supply destruction
- Listed companies have cut costs like mad..and even if revenues only achieve 80% of what they were in 2019, due to a low cost base, profits have a high probability of matching 2019 levels by 2H21.
- Listed co’s are the ones with access to capital (both equity and debt)
- Positive momentum is building from the awful low during March-April 2020.
- What about all this massive debt out there? Interest rates are going to stay silly low for 5-10 years with central banks trying to inflate away the problem. (see 1)
- What about the unemployment issue and SME closures? Yes, you’ll see bad debt go through the roof – banks will write off/sell off a ridiculous amount – or we go into a Japanification mode. Yes, demand will be lower, hence the -20% in revenues. SME closures lead to larger market shares for the listed co’s that have the balance sheet and access to capital that SMEs don’t. I.e. Your 2nd favourite non-chain restaurant will be gone (not the #1 favourite because customers will still flock there), and that location will be taken up by a chain (i.e. a listed co).