Despite the challenging period and first recession in Australia in 30 years, spending on consumer goods, particularly in categories such as furniture, home improvement and electronics, has been strong, according to Auscap Asset Management.
However, the strength in these categories, which was clearly supported by Government stimulus, would be expected to decelerate from current levels over time, the manager said in its newsletter.
The data showed that over the last 30 years, Australian households saved an average of 4.7% of their net disposable income per annum but in the June quarter just gone, this rate rose to 19.8%, the highest level recorded in 40 years. And this extraordinary $42bn increase in household net savings was due to a $35.2 billion fall in household spending and a $7.1bn increase in income due to the Government’s income assistance measures.
If the early access to superannuation scheme were included as a savings measure, the household savings ratio would have jumped to 24.8%.
According to Australian Bureau of Statistics (ABS) data, furniture and household goods spending accelerated by $1.8bn in the June quarter. However, this increase appeared relatively minor in the context of material declines in most other major categories of expenditure, with a net reduction in expenditure of over $33bn.
Auscap said that rather than using the Government’s income support and reduced expenditure in categories such as travel and transport to splurge on discretionary goods, the majority of households prudently decided to improve their personal balance sheets, with Australian credit card debt falling over 20% to $22.4bn in June 2020 from $28.4bn in December 2019.
“While it is positive to see consumers reducing their high-interest bearing credit card debt, most Australian household debt relates to housing. With the Reserve Bank of Australia cutting the cash rate to a record low 0.25% and providing forward guidance that they are unlikely to increase this rate for “at least three years”, housing debt interest serviceability has dropped to 5.6%, a level not seen since 2002,” the manager said.
“Given the low interest rate environment and improving consumer balance sheets, interest amongst Australians in investing in property, particularly in the owner-occupier category, looks to be re-emerging.
“The market is justifiably focused on a pull-forward of consumer demand and elevated spending in some categories, the rise in unemployment and the impact of the gradual withdrawal of stimulus. However, the household balance sheet repair and serviceability of household debt provide reasons to be optimistic about the medium-term outlook for consumer demand,” Auscap concluded.
The Auscap Long Short Australian Equities fund, which top ten holdings included carsales.com, Nick Scali, GDI Property group and Super Retail Group, among others, returned 12.4% net of fees during August 2020. This compares with the All Ordinaries Accumulation index return of 3.7%.
Over the month the fund held, on average, 45 long positions and four short positions, with the biggest exposures spread across the real estate, consumer discretionary and financials sectors.
