Question 1: How will the stock market react to the US election results. Will a Biden win cause a drop in the US stock market, and how would that effect the Australian share market?
Answer (by Paul Rickard): The $64 question. Initially, the aussie market will follow any significant move in the USA.
I sense that the US market is becoming more comfortable with Biden, but concerned if Biden wins and the Democrats take control of the Senate. My three scenarios are:
- Trump wins, and the Republicans control the Senate – initially positive for markets;
- Biden wins, but the Republicans still control the Senate – not that bad for markets, maybe an initial sell-off (depends on how much is factored in by markets over the next two weeks);
- Biden wins and the Democrats take control of the Senate – negative for markets.
Question 2: I am interested in purchasing some US stocks. Should I be concerned about the US dollar collapsing/dropping/falling off a cliff etc ?
Answer (by Paul Rickard): I think you should be mindful of the currency because the USD appears to be in a long-term downtrend. Driving this is a ballooning US budget deficit, extraordinary growth in US money supply due to quantitative easing by the US Federal Reserve, and near zero interest rates. Medium term, I see the Australian dollar appreciating against the US dollar.
You can address the currency risk by investing in “hedged” product options (for example, IHVV rather than IVV; or MHG rather than Magellan’s MGE), or alternatively, consider active managers who select globally focussed stocks (rather than stocks focussed on the US domestic economy) and hence will benefit from a weaker US dollar.
Question 3: When looking at market depth on a broker’s website, are you looking at the number of buyers or the number of units? For example, Zip (Z1P) had ‘Buyers 2,063 for 3,159,914 units, sellers 1,842 for 4,470,098 units.’. What should I look at?
Answer (by Paul Rickard): In regard to market depth, you look at the volume (rather than the number of buyers or sellers), and the volume at each price step close to the market price.
You do care about:
- How much you can buy or sell at prices close to the price level
You don’t care about:
- How many buyers or sellers you trade with; or
- Bids and offers away from the market price.
Question 4: As an investor, what is your view on the Melbourne new and established apartment market? Do you think there is too much supply and developers are having difficulties selling them?
Answer (by Paul Rickard): I would be very wary about buying a new apartment in or near the Melbourne CBD. There are too many reports of sky high vacancies, and it is just not clear when international borders will open up and overseas students/new migrants will return. There will probably be some real bargains – but you will need to keep your eyes and ears really close to the ground. Here is a link to a recent article from Domain https://www.domain.com.au/news/how-has-melbournes-apartment-market-fared-during-covid-19-988346/ [1]
Outside the CBD is a different issue. There will be some better opportunities, but you need to understand the supply/demand picture in each area.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.