The domestic housing market has soared as a risk factor in the minds of Australian fixed-income investors according to the latest Fitch Ratings (Fitch)-KangaNews Australian Fixed Income Investor Survey. A deeper look at the data suggests investors believe risk is contained, but the survey as a whole points to expectations of a slowing economy.
Most analysts anticipated the Australian housing market would take a hammering from COVID-19. More than six months into the crisis, house prices have held up better than expected and experience suggests the sector will be among the leaders of a future economic recovery.
On 7 October, following the announcement of the Australian federal government budget, the Australian Office of Financial Management (AOFM) revealed an expected funding requirement of around A$240 billion (US$170.5 billion) for the 2020/21 financial year. The announcement was no surprise to market watchers, but some analysts expect the Reserve Bank of Australia (RBA) may need to step up its market intervention.
Australia’s sovereign rating will be tested in the coming months as the ramifications of the COVID-19 crisis play out through the economy, according to Fitch Ratings. A newly placed negative outlook on Australia’s AAA rating relates to significant downside risks in the domestic economy, including household debt, as well as global factors such as newly levied trade barriers.
One easy conclusion to draw about the COVID-19 pandemic is that the measures put in place to fight it will cause unemployment to rise precipitously. Anticipating this, lenders have already begun offering loan payment holidays and other types of forbearance.
Fitch Ratings and KangaNews have been conducting the Fixed-Income Investor Survey since the first half of 2014. The 2020 iteration combines a deeply negative outlook with vast areas of uncertainty to produce the survey’s most worrying set of data ever.