Invest in the macro-environment, or the business?
The AUS 200 and the NZX 50 are down 12.62% and 3.16% year to date. This is in comparison to the NASDAQ, which is currently up 10.08% for the year. A stark contrast is considering that Australia and New Zealand have had a better Coronavirus response than the United States.
New Zealand has been touted as having one of the best initial reactions to the Coronavirus. However, critics in the early stages of the loosening of lockdown compared New Zealand to Australia as having similar results but with fewer restrictions. But as citizens started experiencing freedom, it became evident which country had the upper hand.
Coronavirus impacts even the strictest of countries
When asked if he shared the same view of Qantas CEO Alan Joyce on low overseas travel for at least 12 months, Australian Prime Minister Scott Morison stated that it was “not unreasonable for Alan Joyce to form the view he has.” The Australian government hinting that they will not reopen borders until the middle of 2021. This is on the back of Australia, posting the most significant one day rise in Coronavirus cases in two months. Australia has recently experienced a surge in Coronavirus cases as people resume their daily lives.
However, New Zealand has not had a perfect ride either. The government has been getting criticism for releasing quarantine patients without checking them for Coronavirus.
With both countries’ shortfalls, they both have performed relatively well in the crisis, sacrificing the Economy for their citizens’ health. Coronavirus fatality rates for Australia and New Zealand have been meager at 1.38% and 1.88%
If we compare this to the United States, the fatality rate is 5.1% and over 2.47 Million Coronavirus cases. With the White House having no clear plan with the Coronavirus and a President game theorizing his way to a successful election in a couple of months, this has put pressure on states to reopen. This is on the back of daily cases surging.
Company or Country?
However, the NASDAQ is outperforming both the ASX 200 and the NZX 50 despite these conditions. This begs the question, should we be investing in the macro picture, or should we be investing in companies? This is a tough call, as companies such as Facebook and Google have a non-cyclical business with a fortress-like balance sheet, while companies in A2 Milk and After pay in Australia have better macroeconomic conditions. There may be value in preparing for America’s second wave and looking at equities and investment down under. The divergence may become evident in the possibility that America goes into lockdown again.
This also may be an opportunity to enter a long position in the New Zealand and the Australian dollar on higher demand for the currencies as investment rush into the NZ and Australian markets.
