Our proprietary AlphaWise survey of 1,530 households shows that whilst broad intentions signal an ultimate recovery anticipated by consumers, underlying financial stress is real and caution weighs on the outlook of many.
The recent market rebound has raised the bar on expectations regarding Australia's post COVID recovery. Our AlphaWise survey highlights a "risk aware" mood with shifts towards "new normal" behaviours and consumption patterns. We note though that fiscal support has been key, with future stimulus critical to intentions playing out.
The shape and pace of the post COVID recovery remains a key debate for investors, with the ultimate path being important to both the outlook for the economy as well as having positioning implications for the Banks, Property and Consumer sectors. We gauge both the impact from COVID-19 and consumer intentions forming at the start of the recovery phase.
The path towards economic recovery in our expected case sees pre COVID levels of activity being achieved by the end of 2021 with the evidence from our survey supporting this profile. What is clear however is that in the current state, any delay and deferral of reopening and social easing policy will challenge our forecasts to the downside, as it would encourage further de-leveraging of an already cautious consumer and likely overlap with an announced targeted tapering of stimulus.
The survey provides more information on the financial circumstances of mortgagors, highlighting that a high proportion are worried about their financial position, have received some form of income support, and at least 10% of those currently deferring home loan repayments will want to extend the deferral period or refinance. The survey broadly supports our assumptions on the likely increase in mortgage risk weightings and the need for higher provisions with respect to the delivery of mortgages, while the risk to our loan loss forecasts is still skewed to the upside. What's more, clarity on the severity and timing of the loan loss cycle is unlikely in the near-term.
Retailers under our coverage have generally benefitted from COVID induced consumer trends including 'food/liquor at home', 'pantry stocking' and 'nesting'. A key debate going forward though is around how long this strength can persist.
The AlphaWise survey presents some interesting themes and perhaps differentiated conclusions. With respect to the retail sector, online sales have been brought forward by about three years but there are indications that the online shift during COVID is not necessarily to be adopted as a permanent habit. The increased growth in the commercial real estate sector as a theme remains inconclusive, but a debate has started, with 35% of people suggesting they would like to continue to work from home full-time. The sentiment towards residential real estate is mixed with just 21% of those surveyed intending to purchase a property in the next 12 months versus a 33%-38% historical range. But, our findings indicate that the HomeBuilder stimulus is making a difference.
The 30%+ market rally from trough to peak has over extrapolated the reality of a reopening-led recovery; a view supported by the broad state of play in which our survey illustrates. Financial Year 2020 results and the clarity they will bring around actual impacts to earnings, cash flow and dividends loom as a catalyst for a tradeable correction in the ASX 200.
For more on the outlook for the Australian economy post-COVID, or a copy of our full report, “Australia in Transition: Mapping Post COVID Intentions" (28 July, 2020) speak to your Morgan Stanley financial adviser or representative. Plus, more Ideas from Morgan Stanley's thought leaders.