It was another great day for global share markets yesterday.
Here in Australia the S&P/ASX 200 Index (ASX: XJO) closed 1.8% higher. And it's off to another strong start today, up 1.0% in late morning trade.
But it wasn't just ASX share prices running higher. Every major exchange in the US and Europe finished in positive territory, as did the major Asian exchanges.
At the risk of sounding like a broken record, the 1.0% gain on the Nasdaq Composite Index (NASDAQ: .IXIC) brings the tech-heavy index to another new record high. It also brings its 1-year gains to a whopping 53.1%.
The ASX 200 is still 14.9% down from its February 20 highs. And with the latest quarterly economic figures in from the Australian Bureau of Statistics (ABS) you might think that record is out of reach for the foreseeable future.
But there's a silver lining in the data that could provide a big tailwind for more ASX share price gains.
Saving like it's 1974
I won't delve into all the details of the ABS quarterly report, which covers the period from March through June. (You can find that here.)
The headline-making news is the big hit the coronavirus pandemic delivered to the Aussie economy. Over the quarter, GDP fell 7.6% in seasonally adjusted current price measures.
Though that's certainly bad news, it was widely expected. What was unexpected was the huge surge in household savings.
Yes, savings had been forecast to rise as the virus restricted the amount of money people are spending on travel, leisure and dining out. This saw household spending fall $35.2 billion in the quarter. But the extent of the savings rise – driven in part by government JobKeeper and boosted JobSeeker payments – surprised most analysts.
According to the ABS, net household savings reached $59.5 billion in the June quarter, an increase of $42.0 billion. That saw household saving grow to 19.8%, up from 6.0%. You have to go back to 1974 to find more frugal Aussie households. And this savings rate doesn't include the money people have withdrawn via the early superannuation access scheme. If you include that, the savings rate works out to 24.8%.
This silver lining in the ABS report – coupled with continuing stimulus from the Reserve Bank of Australia (RNA) and the government – should spell good news for ASX share prices.
The spending trigger that could boost select ASX share prices
With Aussie households cashed up and itching to travel, eat out and spend money on the leisure activities they've been denied, an effective vaccine or other means to control the coronavirus is likely to see a surge in spending.
That could well see a shift in the big share price gains witnessed in technology shares and online retail favourites like Kogan.com Ltd (ASX: KGN), whose share price is up 190% year-to-date.
While the well-placed tech shares should continue to do well, when people re-emerge from their COVID-cocoons ,it's some of today's still depressed shares that could enjoy the biggest boost.
Yet, as L1 Capital co-founder Mark Landau points out, most investors aren't giving enough weight to the fact that an effective vaccine may well be on the near to mid-term horizon. And the impact this will have on today's still depressed energy and travel shares.
According to Landau (as quoted by the Australian Financial Review):
We think that a lot of the COVID hit stocks are still not reflecting any improvement in the likelihood of a vaccine and we think that that represents by far the best risk-reward that we can see in the market at the moment
So whether it's travel stocks or casinos or shopping centres or oil stocks – they all are clear COVID losers. And many of them are trading 50 per cent lower than where they were trading back in January, so the nice thing about maths is that means 100 per cent upside…
We've been consistently saying that we think the likelihood of a safe and effective vaccine is much better than I guess the consensus opinion.
As one example, retail property giant Scentre Group's (ASX: SCG) share price is still down 41% in 2020.
And then there's Crown Resorts Ltd (ASX: CWN), one of Australia's largest entertainment groups, which owns and operates hotels, casinos and restaurants. Year-to-date Crown's share price is still down 23%.
As for Qantas Airways Limited (ASX: QAN), its share price is down more than 44% since 2 January.
Now there's no proven vaccine out there yet. But once there is, it's shares like these that have the potential to see their share price soar as cashed up households go out and spend big.
