2020 - Year in review (Aus edition)
Overview of the key events, trends that shaped life in the shadow of the pandemic
January
Ah! Do you remember those uncomplicated times? When one could just decide to travel anywhere in the world on a whim.
So what was occupying our collective mind space?
The bushfires. The terrible bushfires.
According to Science Direct report analysing the 2019-20 bushfire season
By March 2020 Black Summer fires burnt almost 19 million hectares, destroyed over 3,000 houses, and killed 33 people…
A number of mega-fires occurred in NSW resulting in more burned area than in any fire season during the last 20 years. One of them was the largest recorded forest fire in Australian history. Victoria had a season with the highest number of fires, area burned, and second highest numbers of houses lost for the same period. SA had the highest number of houses lost in the last 20 years
It was a climate catastrophe.
The blowback was even felt in the financial world. BlackRock, the world’s largest asset manager, made headlines with its announcement that it plans to make investment decisions with environmental sustainability as a core goal and avoid investments that present a ‘high sustainability-related risk’.
Then there were reports that Australia’s AAA rating would be at risk. The narrative being ‘Australia is both among the countries most exposed to climate catastrophe and one of the worst in terms of contributions to solutions’.
February
By this time the world was slowly realising the extent of the viral threat - but mostly in denial.
A NAB report estimated
We make an assumption that most of the negative impacts from the virus and bushfires have passed by Q2 – albeit we don’t really expect much in the way of stronger consumption growth till 2021.
In total, even if virus issues are largely sorted by mid year, Chinese growth in 2020 could slow to around 5.5% (previously 5.9%).
Hmmm.
March
Lockdowns. Border closures. Market meltdown. Mayhem.
By mid-March, markets spiralled into oblivion.
Source: https://aswathdamodaran.blogspot.com/2020/03/a-viral-market-meltdown-iv-investing.html
April
The aftermath.
Lockdown impact on Australian retail trade - first the surge caused by the panic buying and stockpiling and then the hangover.
Obviously, this was not great for jobs. But there were some industries which were much more impacted than others.
That wasn’t all though. As the AFR reported perhaps the most significant corporate story of the pandemic. The biggest Australian corporate restructure in at least a decade.
So with borders shut, planes grounded, next to no forward bookings and no financial help coming, Virgin’s board had no choice. They appointed Deloitte's Vaughan Strawbridge, a father of two teenage boys and not far off his 50th birthday, and three colleagues on the night of April 20.
Alas, Virgin was caught in the perfect storm. They had just completed a debt-funded acquisition and on the back of failed negotiations to raise further equity funding were left with no other way out.
May
Obviously, China wasn’t winning any popularity contests around the world.
PM Scott Morrison was particularly hard - calling for an international inquiry and special powers for the WHO (World Health Organisation) to be able to investigate.
China went ballistic.
They announced an 80 per cent tariff to Australian barley exports and banned red meat exports from four Australian abattoirs. Then came cotton, wine and coal.
The good news though was that Australia’s biggest export to China - iron ore - kept rising in price. According to Westpac's chief economist Bill Evans
Iron ore exports vastly overcompensate for tariff-hit wine, barley and coal exports. he overall macro picture in terms of the income effect from China at the moment will be more than compensated by the rising iron ore prices
June
Time to get out the big guns.
$48bn assistance package was deployed by the Government in the June quarter.
The household income actually rose $7.1bn despite more than a million people having lost their job or worked zero hours.
Here is Treasurer Josh Frydenburg
The increase in household income was driven by the largest increase in social assistance payments in Australia's history
Also this happened
July
The ACCC got into the action and came up with the draft News media bargaining code. It is/was a head-spinner.
This builds on the trend of a few other well-intentioned but potentially harmful regulations of the past few years
August
IPO season.
Despite the continuing economic downturn and record levels of unemployment - the S&P 500 was back to an all-time high.
There was a rush of companies looking to list globally - Airbnb, Pinduoduo, Ant Financial, Palantir, Doordash, Snowflake, Asana, Unity, JFrog and Sumo Logic (the last 5 filed for IPO on the same day!)
The global sentiment gave way to a robust IPO pipeline in Australia as well with Laybuy, Adore Beauty, My Deal, Nuix etc.
September
It was official. Australia was in recession. For the first time in over three decades!
On the back of the COVID led destruction - Australia decided to introduce US-style insolvency laws for when small companies get into financial trouble.
The key measures to include
a new process for restructuring debt for incorporated businesses with liabilities under $1 million
moving from a one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model – allowing eligible small businesses to restructure debts while remaining in control of their enterprise
a rapid 20-business day period for the development of a restructuring plan by a small business restructuring practitioner (SBRP), followed by 15 business days for creditors to vote on the plan
a simplified liquidation process for small businesses which will be quicker and cheaper
measures to ensure the insolvency sector can respond effectively to increased demand.
October
Online sales got a significant leg-up in 2020
The e-commerce sector exploded since the March lows.
Afterpay up 12x
Kogan up 6x
Redbubble up 12x
Marley Spoon up 14x
Temple & Webster up 9x
November
Global markets were robust post-US elections and the announcement that multiple COVID-19 vaccines would be available over the next few months.
With COVID under control - Black Friday sales were expected to be ‘make or break’ for many retailers.
Despite the surge in e-commerce, the category leaders in physical retail had actually adapted well to the post COVID world.
Here is an interesting counter-intuitive observation from Gavin Baker
Perhaps the simplest way to express what has happened during Covid is to note that Amazon has actually lost share in e-commerce during Covid. The largest e-commerce share gainers in most categories have been category leading physical retailers as well as the DTC businesses of most brands.
December
Dry powder.
The Treasury estimates $200bn of extra savings with households and businesses which is poised to drive the economic recovery as emergency stimulus spending winds down.
The household savings rate is at a high 18.9% in the September quarter – about double the stockpiling during the 2008 global financial crisis.
Also on an annual basis, job vacancies were 12% higher than November 2019.
And last but not the least…
Australia was beaten by India for the third consecutive time in the Border Gavaskar trophy and second consecutive time on home soil :)