Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Ranking recoveries: aVstralia, aVia, Usa and eUrope

We use four criteria to assess the responses of different countries and regions to the COVID-19 shock:

  1. Containment and restart success – Australia and East Asia are standout global leaders. Europe has made some progress, whilst the US, UK and non-East Asia emerging markets are laggards.
  2. Aggressive monetary stimulus and support – whilst all central banks have cut rates to zero, pursued asset purchases and launched support programs, the Federal Reserve (Fed) and Bank of Canada are the standout leaders. The Reserve Bank of Australia (RBA) has been slightly less aggressive.
  3. Substantial fiscal support and stimulus – Australia is the standout leader, with stimulus of 12-13% of GDP, while the US is around 10%. Other major economies lag behind in the 1.5-4.5% of GDP range.
  4. Windfalls and positioning benefits – the oil price crash is a windfall for Asia, but the hit to the shale oil patch limits the benefit to the US. Exposure to Asia, foreign debt, tourism balance and farm rebound uniquely positions Australia to benefit.

Overall rankings: Australia, East Asia, US, Europe, non-Asia emerging markets.

Earnings estimates have declined 21%, discounting U-shaped cycles, though Europe still appears to have earnings risk. If Australia and Asia pull off V-cycles, there is upside risk to earnings.

Valuation is high in the US, inflated by the Fed and FAANGS. Other markets are more reasonable. Australia is cheap on a V-shaped cycle.

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