'Not a playbook we have seen before': Market rebound leaves investors scratching their heads

One of Australia's most senior financial figures recently sent an email to his mates - all fellow PhD -qualified economists - to ask if now was a good time to catch the falling knife and buy some shares. "They all said, 'No way'," says Dr Brendan Rynne, chief economist at KPMG.

As governments globally plunge themselves into never-before-seen levels of debt and the threat of a second wave of infections lingers over shut-down economies facing mounting unemployment, it is easy to think the stock market is fundamentally out of step with the economic reality. Janus Henderson’s senior portfolio manager Daniel Sullivan is starkly more optimistic. He manages the US$350.5 billion fund manager's resources portfolio and says these companies have seen stable valuations as past downturns have forced companies to fortify balance sheets. "Rio has virtually no debt, has a lot of cash flow and is honouring its dividend," he says.

Sullivan says the risk of a second wave that could extend the economic lock-downs has been "well flagged and talked about" and factored into valuations. For his part, KPMG's Dr Rynne is watching consumer confidence, which he says is an important factor that underpins economic growth. Job security and house prices will be impotant drivers of confidence, he says. “There is an inter-relationship between house prices and equity prices".

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