‘Market/Economic Update’ Category

Busting the bond myth

Busting the bond myth

Rate expectations…

The decline in interest rates to historic lows in recent years has led to anxiety among Australian investors about what will happen to their fixed interest holdings when overnight interest rates begin to rise.

This apprehension is based on the conventional view that longer-dated bonds underperform in this type of rising interest rate environment.

Dr Steve Garth provides another perspective in Cuffelinks.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Market Update 2 (Market Correction) 24 August 2015

Market Update 2 (Market Correction) 24 August 2015

The rout continues

Following a 3.5 percent sell-off on Wall St last Friday night, local and Asian markets continued to shed hard won gains with China leading the way, falling 8.5 percent in just one day. For some background on what has been happening, please read my previous note (Market Update 1 – 21 Aug 2015). For an updated viewpoint Read more here from Russell Investments.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Market Update 1 (Market Correction) 21 August 2015

Market Update 1 (Market Correction) 21 August 2015

The Share Market Correction…

Since April, local share markets have been extremely volatile to say the least, gradually drifting lower by about 10% (as of today). Other markets have also fared poorly, e.g. Chinese shares -32%, Asian shares (ex Japan) -18%, Emerging market shares -18% and Eurozone shares -13%. Even the US share market, which has been relatively stable during this period has given back about 6%.

What’s happening?

First the backdrop. It should be recognised that the seasonal pattern for shares typically sees rougher conditions over the period May to November, consistent with the old saying “sell in May and go away, buy again on St Leger’s Day” (a UK horse race in September).

So with this typically difficult May-November period as our blank canvas, consider the following list of worries…

Greece:
Between April and June the immediate, highly publicised concern was, understandably, Greece. Thankfully, the emotional charge surrounding Greece and the Eurozone has, at least for now, greatly subsided, with the general agreement to a third bailout program. Of course, we could see a small flare-up again with today’s news of a snap Greek election.

China:
More importantly, bubbling away in the background, have been legitimate concerns about China’s slowing economy, and the impact this might have on the global economy, particularly commodity reliant countries like Australia. These worries have come to the fore in recent weeks in response to soft Chinese economic data, fuelled by China’s recent decision to devalue their currency – an unpopular move, but I suspect a positive in the long run – what’s good for China generally helps Australia.

It should also be noted that before China’s share market ‘crash’ of 30%, the Shanghai Index had risen by over 250% in just the previous two years. And this phenomenon is not new. In 2007/2008, the Shanghai Index rose 90%, only to fall 70%. So I believe the takeaway here is to not read too deeply into the Chinese share market.

Commodities:
Commodities were already in a secular bear market, reflecting a surge in supply and price upswing during the ‘boom’ years. Slowing growth in China and the rising trend in the value of the $US only adds further pressure on commodities and Australia’s challenged resource sector.

Unfortunately slowing growth in China and its subsequent currency devaluation has also put further pressure on already weak emerging market economies, which these days represent more than 50% of world GDP. Emerging economies really do ‘matter’.

US interest rates heading-up:
The combination of slower growth in China, falling commodity prices, weakness in the emerging world and the fragility of growth in developed countries indicates that inflation will not be a problem for a while yet. Just the same, the US Federal Reserve appears to be heading towards a rate hike soon and this is creating intense uncertainty – markets don’t like uncertainty.

Is it a correction or something worse?

While it’s certainly no fun, periodic sharp falls in the range of 5% to even 20% are actually quite normal and healthy. Of course, it becomes more concerning if the rising trend in share prices gives way to a declining trend and a new bear market sets in.

But as Sir John Templeton once observed “bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria”. There seems to be a lot of scepticism out there. Shares are simply not seeing the sorts of conditions that normally precede a new cyclical bear market: shares are not generally overvalued; they are not over loved by investors; and low interest rates are likely to remain for quite some time.

Of course, this update hasn’t taken you particularly circumstances into account, therefore, if you need personal advice speak to us, or contact your financial adviser.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

China: What you need to know

China: What you need to know

Market update…

The Chinese share market has fallen dramatically in recent months. So what does this mean for you?
Read more here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

The Australian economy…

The Australian economy…

Where are we headed?

As local markets slide and interest rates fall, it would be easy to assume that Australia’s fortunes have taken a sudden turn for the worst. That would be a mistake. Read more here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Correction time?

Correction time?

Or something worse?

The last few weeks have seen the investment scene hit another rough patch. So is this just a seasonal glitch or something more sinister in the making? Read more here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Interest rates cut

Interest rates cut

A record low…

Today the Reserve Bank of Australia (RBA) finally decided to take the plunge and reduce the cash rate by 25 basis points to 2.00%, a record low.

This wasn’t a huge surprise as economists this morning were factoring in a 78% chance of a rate cut today. Interestingly, the RBA provided no outlook statement for interest rates going forward, so unless the Australian economy deteriorates significantly from here, this could be the last of the rate cuts. We’ll see.

At the time of writing, the Australian share market was initially up 1.1%, however has since fallen into negative territory as the Australian dollar, surprisingly, went up in defiance of the interest rate cut.

While this is welcome news for borrowers, the decision will put more pressure on investors, particularly retirees, with significant cash/term deposit holdings – interest rates are low and will stay low for some time to come. If you need income, it’s time to consider your options.

On a different matter, the Federal Budget will be announced next Tuesday night (12 May) and, as usual, the rumours have been flying fast and furious, from superannuation to negative gearing to pensions.

Our advice is to ignore the background noise. Typically, the lead up to every Federal Budget is a showcase of worse case scenarios and general fear mongering, coming from both side of politics, usually leading to fairly unspectacular, watered-down announcements on the night.

We’ll distill the budget details into a simple, easy to understand report for our clients soon after budget night, once we’ve had a chance to thoroughly weigh-up the proposals on the table. More importantly, we’ll contact you individually should there be anything important to discuss.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

$20 oil could be a reality

$20 oil could be a reality

…if this happens…

Watch video here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.