29/09/15: Market Update No 3

A tough quarter...

Following steep overnight falls in Europe and the US, today our own market followed suit, with the benchmark S&P/ASX200 index down a hefty 195.1 points, or 3.82 per cent, to 4,918.4 points.

So far this quarter, local markets have fallen by just over 9 per cent. So with just one day left in the quarter, it is likely to be the worst period for investors since the third quarter of 2011, when the market fell 13 per cent amid an economic crisis in Portugal, Ireland, Italy, Greece and Spain.

This time however, the explanation is an easy one to understand – China’s slowing economic growth. Over the September quarter, and especially the past two months, China's manufacturing sector has come under severe pressure.

With iron ore prices flat lining over the quarter, oil prices down and the price of copper in free-fall, it’s easy to understand why Australia’s resource sector, which is heavily dependent on demand from China, is experiencing the perfect storm.

Remember, copper is viewed as a baseline for the health of the Chinese economy because it is used heavily in industrial building, housing construction and technology.

AMP Capital's head of portfolio management Debbie Alliston said China is the key factor in plunging share prices. "Markets are reacting to fears that this going to slow global growth significantly, particularly for those countries that are reliant on Chinese demand," she said.

Weakness in the Australian banking sector, amid moves by regulators to slow lending to property investors amid soaring Sydney and Melbourne home prices, has also weighed on the share market.

On top of that are the usual worries about the timing of a US Federal Reserve interest rate hike.

But Ms Alliston said members of superannuation funds with investments in a range of assets should not panic about the market's downturn, and sit tight instead. "This is definitely not another GFC," she said.

According to another analyst, the market's heavy fall has “Australian shares looking cheap, and stock valuations are probably near the point of luring buyers back into the market, especially with interest rates set to remain low.”

We'll keep Westmount clients updated on any important developments.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.

18/09/15: The Cycle of Market Emotions

Seem familiar?

Produced by Russell Investments, I'm afraid to say that this particular illustration, going back to August 1984, brings back many, many memories. Worth a quick look. View Here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

01/09/15: Interest rates on hold

But for how much longer?

The Reserve bank board met on Tuesday 1 September and kept official interest rates on hold at 2%, continuing to assess the impact of the two rate cuts earlier in the year.

Lack of business investment No doubt the RBA board would have discussed at length current weak commodity prices impacting our national income, the lack of business investment as well as two key developments that arose earlier in August. These include the recent devaluation of the Chinese currency and the weak Australian unemployment report.

Unemployment rate Previous RBA commentary indicated it considered the unemployment rate profile was around 6%. However the other key development in August was that the unemployment rate jumped to 6.3%. A higher unemployment rate is also a catalyst for an inflation downgrade, due to weak wages growth.

Business conditions and confidence The NAB business confidence survey for August pared back the post Budget gains, however both conditions and confidence are suggesting a turnaround in the non-mining economy, with conditions varying greatly across industries. The confidence index is still positive and holding around average levels.

Macquarie Bank is of the view that the combination of the Chinese currency devaluation, a weakening labour market and excess capacity in the economy all support the case for a further rate cut in November. The next RBA board meeting will be held on Tuesday 6 October.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

28/08/15: 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.

25/08/15: The Patience Principle

What we all know deep down inside...

DFA's VP Jim Parker weighs in on the latest market volatility. As always, Jim's 'Outside the Flags' issue is worth a quick read. Read here.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

24/08/15: Market Update 2 - 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.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.

24/08/15: Let's compare...

A few surprises...

Sometimes it helps to take look the world through an unconventional perspective when thinking about the size of things.

So here’s a pretty awesome map from Bank of America Merrill Lynch’s Chief Investment Strategist Michael Hartnett that shows the world according to free-float equity market capitalisation in billions of dollars measured by the MSCI.

The US, with a market cap of $US19.8 trillion, is the biggest and represents 52% of the world’s market cap. Japan is in second place at $US3 trillion, followed by the UK at $US2.7 trillion, and then France at $US1.3 trillion.

Notably, Hong Kong’s market cap is nearly the same size of China (both of which are significantly smaller than countries like the US and Japan).

Meanwhile, Russia, which has a bigger surface area than Pluto, is about the same size as Finland in terms of market cap.

Check out the whole map below.

Capital

Rick MaggiWestmount Financial Clear Focus. Better Solutions.

21/08/15: Market Update 1 - 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.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.

20/08/15: Time is on your side...

The Vanguard 2015 Index Chart

Every year, fund manager Vanguard produce a graphical, chronological 'snapshot' of the performance of local and international sharemarkets, property, cash and bonds, along with significant news events of the day. Always worth a look. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

29/07/15: 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.

06/07/15: Greece after the "no" vote

Should you be worried?

As generally expected, the "No" vote won the day, with over 60% of Greeks rejecting further 'austerity' measures. So clearly it's back to the negotiating table, for now. So what does this mean for investors going forward. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

18/06/15: Tax concessions and tax reform in Australia

A well balanced commentary...

As house prices rise and/or when economic activity slows, the inevitably cries for tax reform can be heard from both sides of politics. This note focuses on the debate around the four major "tax concessions" in Australia - negative gearing, capital gains tax discounts, dividend imputation and, of course, superannuation. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

03/06/15: 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.

21/05/15: Don't look back - what drives potential returns?

A medium term view...

AMP Capital's Dr Shane Oliver discusses the thinking behind their investment projections, and offer some interesting insights for the medium term.

This is an excellent read for retirees and investors - a little technical in parts, but worth persevering. In the end, I think the most important takeaway is that we should have reasonable return expectations going forward, and watch your asset allocation more than usual. Please call me if you have any questions.

Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

13/05/15: 2015/16 Federal Budget

Just the facts...

Last night the Federal Government handed down the Budget for the 2015-16 year, and as foreshadowed, the Budget contained relatively few surprises, with a number of announcements made in the previous weeks.

Of course the most notable announcement impacting clients were the 2017 Age Pension changes and the ‘no new superannuation taxes’ commitment I highlighted last Friday (click here for another copy).

Self-managed super funds also dodged a bullet with no mention of implementing proposed changes to limited recourse borrowing arrangements.

The Government appears to be banking on small business to lead the recovery and has set out a series of generous new tax concessions for businesses with turnovers of less than $2 million. These include a drop in the corporate tax rate to 28.5 percent, immediate tax deductions of up to $20,000 for capital expenses, and FBT exemptions.

Primary producers also do well, regardless of their size with generous depreciation concessions for fencing, water rights and fodder.

So where is the sting in this Budget?

The Government has been careful in its targets. Rather than increasing taxes, the Government has focused on loopholes where there is a clear argument for ‘fairness’.

For example, Multi-national companies who avoid paying tax on business profits in Australia are in the firing line, and GST will be extended to imported digital products and services.

Also, fly-in fly-out (FIFO) clients may lose the zone tax offset, and caps will apply to salary sacrificed meal and entertainment expenses for employees of charities, hospitals and public benevolent institutions.

For a more detailed summary of the Federal Budget Click here.

Even better, feel free to call me personally if you’d like to know whether this year’s budget is likely to impact on you personally.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.