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With so many political and economic events having taken place this year, and with further uncertainty on the horizon, it’s understandably a difficult time for investors to make sense of what’s happening in markets and know where to put their hard-earned cash.

For the next few months, I’ll be sharing insights around three key investment themes to help you make sense of the market and identify opportunities. This month, it’s all about the Federal Budget, RBA movements, COVID-19 and the US election.

Sectors to benefit from the Federal Budget

The 2020 Budget was one of the most anticipated budgets for some time, given our economy has been rocked by COVID-19. By unpacking the measures announced, savvy investors can position their portfolios to benefit from the sectors and companies in favour.


Yearly revenues in the construction material industry are estimated to grow by approximately $80-$250 million, given the Federal Government pledged $100 billion in nationally-significant transport infrastructure projects over the next 10 years. If you’re looking for a stock to watch in this space, Boral (ASX:BLD) has a bright outlook considering it has a footprint on the east coast where the majority of government pipeline work is focused.


Australian household income is forecasted to increase by $3-$4 billion a quarter as a result of personal income tax cuts, increased pensioner payments, and the implementation of the JobMaker program. In saying this, retail sector spending is cooling from its COVID-19 spending high, given superannuation withdrawals have already been put to use. With this in mind, it would be worth looking at stocks with cheaper price to earnings ratios such as Rebel Sport owner, Super Retail Group (ASX:SUL), and supermarket giant Coles (ASX:COL), who will be set to benefit from bolstered household incomes.


Last week, the financial sector (as measured by the S&P/ASX200 Financials Index) ranked in as the second-best performing sector, up 7.5%. This strong performance looks likely to continue, given the banking sector will indirectly benefit from wage subsidies, tax offsets, and tax write-offs, specifically from SME corporates. Recently, banks have seen an increase in mortgages and savings rates, which is offsetting the fall in profit margins given interest rates are at record lows. It will be important to keep an eye on loan deferral figures in the coming months, and also on banks financials with surplus capital and diversified incomes. Our top stock pick in the sector is Macquarie (ASX:MQG), followed by ANZ (ASX:ANZ) (among the big four), and Suncorp (ASX:SUN).

Rocky waters ahead

Financial markets are used to weathering volatility, with many using it as an opportunity to invest. This year we saw volatility spike in March due to COVID-19 uncertainty, and more recently, volatility picked up again due to the US election and stimulus uncertainty, coupled with an increase in coronavirus cases.

Concerns around the US election are not as focused on who will win (given the polls are at 50/50 for a Trump/Biden win), but rather on who will win the Senate and what changes will be made to legislation.

If Biden wins, markets are likely to be as bumpy as rough seas, as the democratic party will look to further the healthcare reform following on from Obamacare. This is likely to be detrimental to US healthcare stocks as the focus will be on providing public health care and moving people to the government payment option. The move away from commercial/private health care will reduce the profitability of the private sector.

With constant headlines on the US election and how it impacts us locally, it can be tempting to reposition your portfolio in response to every announcement. During these times, such as now, it’s crucial for investors to stick with long-term investment goals to avoid incurring unnecessary realised losses.

Monetary policy impact on equity markets

The Reserve Bank of Australia’s (RBA) minutes are always full of valuable pieces of gold. In the most recent minutes, it was revealed the central bank will likely drop interest rates again, given they said they are considering how “additional monetary easing could support jobs as the economy opens up further”.

Further to that, given as central banks are buying bonds, there is a lot money being flushed into the system. This supports stock market valuations (given investors are chasing returns in equity markets).

With the combination of the Government’s new stimulus mentioned earlier, and the RBA keeping rates low and hinting of a potential cut, it’s easy to see why longer-term share market growth is looking like it will be supported.

With this in mind, consider sectors which traditionally perform well in recessionary cycles. These include consumer staples and healthcare, and tech – which is a sector we’ve seen skyrocket this year.

Specific stocks in the consumer staples sector to look out for are food grower Costa Group (ASX:CGC) and Select Harvest (ASX:SHV).

For healthcare, consider global biotechnology company CSL (ASX:CSL), disinfection company Nanosonics (ASX:NAN), and diagnostic company Pro Medicus (ASX:OME).

In the tech space, consider Appen (ASX:APX), Xero (ASX:XRO), and Afterpay (ASX:APT), particularly if you see a dip in price.

In addition, keep an eye out for companies that will benefit from the economic recovery, given GDP is likely to rebound next year. Consider cyclical stocks like Aristocrat (ASX:ALL), Cochlear (ASX:COH), and Service Stream (ASX:SSM), and consider adding stocks to your portfolio that will benefit from the rebound of boarders opening.

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