Magellan boss says budget won’t end market uncertainty
Investment powerhouse Magellan's boss Brett Cairns says while the federal government's landmark budget will help improve local economic conditions, investors still need to buckle up for an extended period of volatility in the markets.
Mr Cairns welcomed the government's reforms to superannuation to boost efficiency in the sector and said the tax cuts announced in the budget should have a positive impact on the economy, which in turn should benefit the financial sector.
"We are a function of the economy," Mr Cairns said. "Our business is the function of peoples' savings and super."
Magellan chief executive Brett Cairns says markets still face huge uncertainty.Credit:Janie Barrett
However, he said economic stability was firmly pinned to the development of a COVID-19 vaccine and the "choppy" conditions brought on by the US election and President Donald Trump's abrupt end to stimulus talks this week continued to destabilise markets.
"I wouldn't want to downplay the budget as being inconsequential but there are a lot of other variables," Mr Cairns said. "Markets are forward looking and there’s a lot of uncertainty still."
Argo Investments chief executive Jason Beddow agrees that the outcome of the US presidential election will define the trajectory of global markets.
"The US election is bigger news than the Aussie budget for global markets to be honest," Mr Beddow said. "The polls have shown to not be the most reliable things over the last few years for major events and markets just don't like uncertainty."
Mr Beddow said the election outcome could also have longer term impacts for the Australian economy, as each presidential candidate has a different approach to managing relations with China "and we get caught up in all of that".
Magellan manages over $102 billion and its total revenue for the financial year was more than $693 million, meaning the Sydney-based investment house will be eligible for the government's asset write off scheme that enables businesses to make deductions for investments worth up to $150,000.
However, Mr Cairns said his firm was a more "people-focused" business and the company, like others in the finance industry, would not necessarily benefit from this scheme.
"If you think about our business, it's mainly people. We've got some fixed capital but we're not like a heavy industry."
The firm had been able to maintain full employment throughout the pandemic, with no hours or pay cut for staff, like some of the big accounting firms.
"We’re fortunate in that regard. We’re not at the front line of the pandemic so we’re thankful in that regard," Mr Cairns said.
Mr Beddow said the finance industry had already spent large sums on technology needed to adjust to the working from home model, but added these firms could now benefit from the wage subsidies by hiring younger Australians.
"They might employ graduates and the like with the incentives, that they may not have done because of COVID, that might be enough to get them to go back to their old numbers or even increase them."
Meanwhile, Perpetual's head of investment strategy Matt Sherwood said governments around the world had reached "peak policy" and this budget would not stop further market volatility.
"Interest rates around the world are at zero…meanwhile budget deficits are anywhere between 5 and 10 per cent," he said.
"When I look at Australia’s budget, I would argue the stimulus is obviously very large but Australia has a pretty large fiscal cliff in the December quarter of around $60 billion, and the budget makes a small contribution to filling that hole."
"Markets are pricing in a recovery that may not be able to be delivered. As such, investors need to be working on diversifying their portfolio."
Mr Sherwood said recent market rallies were based on announcements related to a vaccine, but it was unreasonable that a working vaccine would be ready within the next 12 months.
"The trouble with a vaccine usually takes four to five years to develop an effective vaccine but the world is trying to push one out in six to 12 months."
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