In today’s Money Morning…the clock strikes 12 and the Brits sign the divorce…the UK wants our stuff, the Chinese want our stuff, the US wants our stuff, so let’s sell it to them…is it really that bad or is the Aussie market about to enter a massive, long term bull run…and more…
It’s been quite a day here in the UK. In fact, if you watch the news it’s the biggest day in about 44 years. You see, 44 years ago the UK decided to join the European Union (EU).
Now 44 years on, it’s official — the UK is leaving the EU. British Prime Minister Theresa May handed in the ‘divorce papers’ today. And by the time Big Ben strikes midnight in two years’ time, the UK will be out.
What does that mean for markets around the world? How will this play out for Aussie investors? Well to be honest, it probably won’t mean anything. In fact, the way we see it the UK getting out of the EU was overdue.
They were never really part of it. Their role was more like an intrigued bystander. Like the people that stand nearby a disaster to watch the carnage, filming it on their smartphone. Involved but never really involved.
Long term it will be fine. The UK is and will continue to be one of the world’s biggest economies. The EU will continue to be a basket case. Companies in both regions will continue to go about business.
All that’s going on now is a bit of a news story. But as the British often say, ‘keep calm and carry on.’
And carry on is exactly what’s happening in Australia.
Britain leaving the EU will have impact on the British pound. Short term it will likely see continued weakness in the Pound. That weakness will hurt Aussie companies that make money in the UK and bring it back to Australia. At least short term.
But let’s not forget, once out of the EU the UK will be keen to set up trade agreements with other countries. And Australia is one of the UK’s friends, right up top of that list.
The world wants to buy our stuff
The UK has a desire for many of the goods and services we make and provide in Australia. That desire will grow if the EU becomes more expensive thanks to pecuniary trade barriers. Right now Australia exports around $7 billion worth of goods to the UK. An exit from the EU that could see that head towards $10 billion.
And it’s not just the UK that has this desire for all things ‘Aussie’. China continues to thirst for our dirt, our food, our property. Just about anything we have, make or sell, China wants a piece of. They are far and away our biggest trade partner.
In 2015–16 we exported over $75.1 billion worth of trade to China. We also happen to import more from China than anywhere else. Unsurprisingly the biggest chunk of that $75.1 billion is iron ores & concentrates worth $38.7 billion. Coal, gold and wool are the next biggest export goods.
Let’s not forget our friends across the Atlantic too. The US is still one of our biggest trade partners. In 2015–16 we exported $13.7 billion of goods to the US. $2.4 billion of that was beef.
Put simply, there are a lot of countries that desire the products and services Australia has on offer. That’s good news. Well…it’s good news if the government figures out the opportunity on offer.
We have trading partners that want to trade. We have goods and services that other countries want to buy. We have a country that has the potential and capability to ramp up the quality and quantity of what we can sell to the world.
Australia has been known for some time as the world’s dirt pile. Thank the biggest commodities boom in history for that. But now we need to transition to become the world’s ‘mega mart’.
We should be selling agriculture to China and the US. Selling education and high-knowledge industry to Europe and the Middle East. Selling biotechnology, scientific research and innovation to everyone.
The optimist in us thinks that Australia might actually be waking up to this opportunity. Actually, let us be more specific: Australian business is waking up to this opportunity, not the government.
We can see that corporate Australia senses opportunity in the early signs of a long-term bull market.
Hang on a second…did he just say ‘bull market’?
That’s right my friend! In our view the Aussie stock market has a horde of bulls pawing the ground behind a gate that’s about to burst open. These bulls are primed, ready and raring to charge.
The gates aren’t quite open yet. But they’re buckling at the hinges.
You will see that the ASX All Ordinaries index is at 5,910 points. By the end of this week it will burst through 6,000 points. By Easter we could be looking at an ASX trading at a level as high as before the GFC hit.
Imagine a stock market that is not only trading at pre-GFC levels, but higher. How bad could things be if that was to happen?
The great Aussie bull market
The answer to that question is things aren’t bad. Well, not as bad as they might seem. The Aussie economy is facing headwinds, no doubt. The property market is white hot, and primed for a significant correction. Our dependence on selling dirt to China is still an issue as it’s not a long-term strategy. Jobs and wages growth are all going to cause headaches.
But the stock market marches on. Companies that make and deliver goods and services to sell to other countries are pushing our market forward. These incredible ASX listed companies are government-agnostic. They simply go about their business with the cards they’re dealt — they keep calm and carry on.
And they’re going to push the broader All Ordinaries Index past 6,000 in a few days. In a month they’ll push it past 6,500 points. By the end of this year we could see the All Ords testing 8,000 points. And by the end in 2018 we will see the broader Aussie market north of 10,000 points.
Think we’re nuts?
Well, let’s see how it all plays out. And come back to the answer in 2018.
Many people didn’t think the US markets were capable of a massive bull run just five years ago. But the NASDAQ is almost 100% higher than it was just five years ago. Sure that’s a tech-focused market — but so is the ASX. At least, that’s the direction it’s going.
Make no mistake, Aussie stocks are primed for a huge bull run, pushing the whole market forward. The major indices will march towards all-time highs. And if the broader market is looking at rising 20%, 30%, 50% then imagine how hard and how high smaller and microcap stocks could run.
It’s coming. The Great Aussie Bull Market. Be ready for it.