What the re-opening of Australia's borders will mean for investors
Australia's current tight labour market - and cooling property values, are both attracting plenty of attention. But neither may last for long.
The significant X factor is the re-opening of our national border. When immigration hits full tilt, it has the potential to drive both shares and property values higher.
An artificially low unemployment rate
Two years of COVID-19 have wrought exceptional change across our lives and the economy.
Our national unemployment rate currently stands at just 4.0% - a low not seen since the 1970s.
Moreover, the latest Federal Budget confidently predicts unemployment will drop to 3.75% by mid-2022.
This all makes for positive headlines. And undoubtedly it's great news for jobseekers, and may help to push wages higher.
But the reality is that our wafer thin unemployment rate has been artificially driven.
Immigration could be the game-changer
Two years of closed borders have seen overseas migration to Australia plunge.
Pre-pandemic, Australian Bureau of Statistics (ABS) data shows net overseas migration had remained broadly stable for many years at around 180,000 new arrivals annually.
This influx of people has been critical for our economic growth. You only have to consider that 29.8% of the population - almost one in three people, were born overseas, to recognise the important role immigration plays in Australia.
Our pandemic-driven border closures of the past two years have slowed immigration to an abrupt halt.
In 2020/21 Australia experienced a net outflow of 88,800 people. It was the first loss since 1946 and second lowest figure on record. International student numbers fell off a cliff.
That could be about to change.
The Federal Government's 2022-23 Migration Program allows for 160,000 migrants to arrive over the next year. Close to 110,000 of these places are allocated to skilled workers.
Already, between late November 2021 and early 2022, we saw 56,000 international students arrive in Australia. One week in February alone saw the return of 7000 overseas students.
A strong year ahead for shares
As immigration into Australia returns to pre-pandemic levels, the unemployment rate is likely to head back to 5%.
In terms of the property market, it's a no-brainer that all these new arrivals need somewhere to live. This will drive demand for housing.
That's not just welcome news for homeowners. Sharemarket investors will benefit too.
Over the past 10 years, the Australian stock market has been closely correlated to property values. We did see a decoupling during the early days of the pandemic, though shares rebounded quickly, with house prices promptly following.
CommSec expects the Australian sharemarket to lift by around 5% over 2022. I believe we could see double those gains.
The property market could also be up for another year of healthy growth supported by higher than anticipated immigration and election spending promises.
On the other side of the ledger, interest rates will rise. And as I have noted, the unemployment rate will likely nudge higher. However, it's hard to see this causing a contraction in consumer spending that could restrict economic growth.
What we are really looking at is more of a return to 2019 levels of economic activity. And I'm sure most of us would agree, that's a welcome step on the long road back to normal.
Any advice provided is general in nature and does not take into account the viewer's specific needs and circumstances. You should consider your own financial position, objectives and requirements to determine the type of advice and products to best suit your needs. Jaaims Australia is an Authorised Representative of Jaaims Technologies, AFSL 519985.
Get stories like this in our newsletters.