Market Update - High debt level may push many Australians to delay retirement

Over many generations there has been a long held belief that we need to pay off our mortgage as fast as possible. As a consequence, it was common to find Australian’s in their 50’s and 60’s who had done just that, although it was also common to find that they had not planned for retirement with many reliant on the aged pension.

But times have changed and property prices have soared over consecutive decades as a result of easier access to credit, not to mention the marketing hype around property encouraging individuals to borrow to buy bigger homes, pools, new cars, and holidays to name a few. Now it is very common to find people in their 50’s and 60’s with significant levels of debt in the years immediately prior to their retirement, so it’s no wonder many are nervous about retiring.

If we look back at the GFC, many retirees and those close to retirement struggled after their superannuation plummeted as the market fell with some even having to go back to work to survive. It is now ten years on and the coronavirus crash has hit current retirees and those nearing retirement. So once again, many Australians in retirement or close to retirement may be faced with the conundrum of whether to continue working or returning to work to survive. Some may even need to sell down their assets if they want to retire.

With the concerns and restrictions surrounding the coronavirus are expected to continue for quite some time, analysts are predicting residential housing prices will fall in the coming year. We are already seeing a significant increase in vacancy rates in rental properties in major cities as students, expats, and others have left Australia. And those in debt who are nearing retirement may need to sell their property to pay off their debt and rent rather than buy, which may push property prices down further.

While the coronavirus has been devastating, the one thing I hope that changes as we move forward is a reduction in the level of debt in Australia because we cannot continue as we have in the past. As a country, it is important that we keep our debt levels low and plan for retirement earlier rather than later, as we don’t know when the next GFC or coronavirus will occur.

While the market has fallen slightly, there are three sectors that are currently still in the green with Communication Services, Healthcare, and Industrials all up under 1% so far this week. The worst sectors include Energy down over 4%, Financials down over 2% and Information Technology down over 1% so far.

Looking at the ASX top 100 stocks, Amcor has topped the list followed by Newcrest Mining, as both are up over 5%. Brambles and Northern Star Resources are also up having risen 3% for the week. So far the worst performers include Unibail-Rodamco-Westfield down over 13%, while Incitec Pivot, IOOF Holdings, and Challenger are all down over 10%.

Once again, the Australian stock market has been reluctant to push higher in a sustained move. Last week I indicated that the market needed to move above 5,623 this week to give us an indication that the bullish move is sustainable. While it has tried to push through this level three times, the Australian market has failed to close above 5,600 points since 11 March.

Right now, I cannot say whether the market is bullish or bearish, although it will pick a direction very soon. If we look at individual stocks, while there are many that are showing strong signs, there are just as many displaying bearish signs. So, once again, I urge investors to be careful but, more importantly, be ready to buy if the market rises or to exit if it falls away. For now, I am sticking to the belief that the next move will be down and that price may fall below the low set back in March. That said, I would be very happy to be wrong in this assumption.

About Dale Gillham