Conditions in place for massive bull run

By Lelde Smits. Published at Jun 3, 2016, in Question and Answer

Renowned economist and Market Economics Managing Director Stephen Koukoulas details to The Capital Network’s Lelde Smits why he’s bullish and the pre-conditions in place for a massive bull run.

Lelde Smits: Hello I’m Lelde Smits for The Capital Network and joining me in the nation’s capital, Canberra, is the Managing Director of Market Economics, Stephen Koukoulas. Stephen, wonderful to speak with you here.

Stephen Koukoulas: Good to be here.

Lelde Smits: Now you do write a lot about economics. Are you overall bullish or bearish about Australia’s economy?

Stephen Koukoulas: I’m more upbeat. I think the conditions for a continuation of the growth cycle are in place. And, just more recently we have seen an uptick in commodity prices, which of course is good for Australia. Interest rates are low and staying very low for the next little while, and that will support economic activity. And, things like consumer spending will probably be doing quite well. Employment is growing, the unemployment rate is under control.

So, they are the dynamics that I think will be positive. Of course there’s negatives with the mining investment outlook that will be weak. But, you add it all up, the economy is probably going to doing quite well.

Lelde Smits: Well, it’s always good to hear someone feeling positive but Stephen what do you believe are the biggest problems around Australia’s current economic debate and also policy issues.

Stephen Koukoulas: The policy debate is really frustrating because of course there are issues of balancing the budget over the medium term. And, unless we address the revenue side of the budget – which neither side seems really keen to be wanting to do with the election coming up shortly – that we really need to address if we are collecting enough tax to pay for the things we as consumers want, like aged care, health care, education. They are important things for Australians. And, at the moment we are not collecting enough revenue. That’s one area of the debate that is quite frustrating.

The other one is the good old micro-economic reform. We need to keep reforming our economy, we need to keep ourselves efficient. We need to be running fast to keep up with our competitors. The global economy is advancing, technology is improving. So, to maintain our position in the world economy we’ve got to do more.

Lelde Smits: We do have a low inflation environment at the moment. Where are you looking to for growth opportunities?

Stephen Koukoulas: It’s a tough investment environment, particularly given that low inflation environment. I think the days of double digit returns are long gone. But, if you can get 5 per cent on an investment class you’re doing well. So, shares have been very weak, they’ve been weak for a couple of years. The All Ords [the All Ordinaries (XAO) index}, stuck around that 5,000, plus or minus a couple of hundred points. I think there is something about to happen in the stock market here in Australia.

Lelde Smits: What is going to happen? That sounds exciting.

Stephen Koukoulas: Look, I’m bullish because I think the low levels of corporate debt, interest rates staying low and that positive economic outlook will support the corporate world. And, people will probably want to take their money out of property at some stage. Perhaps put it into the stock market. And, as we saw in that 2005 – 06 – 07 period when the ASX [Australian Securities Exchange] really had a massive bull run the pre-conditions are there. Hard to pin-point the day but I think that I’d be putting my money in stocks.

Lelde Smits: It’s looking pretty good?

Stephen Koukoulas: Yeah.

Lelde Smits: Thank you for your insights today.

Stephen Koukoulas: Thank you very much.

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