News Updates
AS IT HAPPENS
As Warren Buffett once said: “There seems to be a perverse human characteristic that makes easy things difficult.” This has particularly been the case with investing where complexity has multiplied with new products, new ways to access various investments, tax changes and new regulations, all with social media adding to the noise. But it’s really quite simple and this can be demonstrated in charts...
Investing is often seen as complicated. And this has been made worse over the years by the increasing complexity in terms of investment products and choices, regulations and rules around investing, the role of the information revolution and social media in amplifying the noise around investment markets and the expanding ways available to access various investments.
But at its core, the basic principles of successful investing are simple. And one way to demonstrate that is in charts or pictures – after all, a picture tells a thousand words.
This note looks at five charts I find useful in understanding investing. Check back soon as another 5 charts are coming your way.
The past financial year turned out far better for investors than had been feared a year ago. This was despite a lengthy list of things to worry about: starting with the Brexit vote and a messy election outcome in Australia both just before the financial year started; concerns about global growth, profits and deflation a year ago; Donald Trump being elected President in the US with some predicting a debilitating global trade war as a result; various elections across Europe feared to see populists gain power; the US Federal Reserve resuming interest rate hikes; North Korea stepping up its missile tests; China moving to put the brakes on its economy amidst ever present concern about its debt levels; and messy growth in Australia along with perennial fears of a property crash and banking crisis.
Predictions of some sort of global financial crisis in 2016 were all the rage. But the last financial year provided a classic reminder to investors to turn down the noise on all the events swirling around investment markets and associated predictions of disaster, and how, when the crowd is negative, things can surprise for the better. But will returns remain reasonable? After reviewing the returns of the last financial year, this note looks at the investment outlook for the 2017-18 financial year.
Three reasons not to be fussed...
For much of this year, there has been a surprising divergence between share and bond markets with shares up in response to improving growth and bond yields down in response to weak inflation.
Some feared that either bonds or equities had it wrong, but in a way it seemed like Goldilocks all over again – not too hot (ie benign inflation) but not too cold (ie good growth). However, the past week or so has seen a sharp back up in bond yields – mainly in response to several central banks warning of an eventual tightening in monetary policy.
Over the last week or so, 10 year bond yields rose 0.2-0.3% in the US, UK, Germany and Australia. This may not seem a lot but when bond yields are this low it actually is – German bond yields nearly doubled. This caused a bit of a wobble in share markets.
The big question is: are we seeing a resumption of the rising trend in bond yields that got underway last year and what does this mean for yield sensitive investments and shares? Since central banks are critical in all of this we’ll start there.... Read on
It’s a tough gig being a nancial media pundit whose job requires making eye-grabbing calls on the outcomes of major world events. But at least the pundits rarely have to deal with the consequences of their bad predictions. Read more
It's now 12 months since the British voted to leave the European Union, an event that some saw as setting off a domino effect of other European countries looking to do the same. This was also followed by a messy election result in Australia, Donald Trump's surprise victory in the US presidential election, increasing concern around North Korea and a steady flow of terrorist attacks.
The combination of which seemed to highlight that geopolitics is now more important, and perhaps more threatening, for investors than had previously been the case. But while political developments have figured highly over the last year, the impact on markets has been benign. Since the Brexit vote, global shares are up 22% and Australian shares are up 13%.
So what gives? This note looks at the main issues. Read more here
I am regularly called on to provide forecasts for economic and investment variables like growth, interest rates, currencies and the share market. These usually come in the form of point forecasts as to where the variable that is being forecast will be in, say, a year’s time or its rate of return. Such point forecasts are part and parcel of the investment industry. In fact, forecasts about all sort of things – from the environment to economics to politics to sport – have become part of everyday life.... Read more here
Around May each year I normally get a bit wary about the risks of a pullback in shares. It seems the old saying “sell in May and go away...” is permanently stuck in my mind. And of course shares have had a great run since their global growth scare “bear market” lows in February last year to their recent highs with global shares up 31% and Australian shares up 25%, and both saw good gains year to date to their recent highs of 7% and 5% respectively. Meanwhile, although there have been several calls this year that the so-called “Trump trade” – anticipation of his pro-business policies that supposedly drove the surge in shares since the US election – is over, the risks have intensified lately given the issues around Trump, the FBI and Russia with some fearing the Trump trade is now set to reverse. This note looks at the main issues. Read more
On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year.
According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.
Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament...
Read Budget Summary Here (Colonial First State)
Australia's sharemarket could jump as much as two thirds over the next decade, underpinned by a booming superannuation sector and the nation's status as a 'growth haven', according to a new report by Macquarie Research.
The report released today, says the ASX 200 could climb from its current level at just below 6,000 points to 10,000 points over the next 10 years, and to 20,000 by 2040.
Jason Todd, head of Australian macro-economic research at Macquarie, said Australia's super pool, which is expected to rise from $2.3 trillion to around $8.8 trillion over the next 25 years, would provide a "backstop" to equity markets and demand for new listings.
He argues that while many view the Australian market as expensive, it is currently trading at 16 times earnings versus a long-run average of 19 times. The US sharemarket is trading at 29 times.
James McIntyre, head of economic research for Australia at Macquarie, described Australia as a "growth haven", pointing out that economic growth has outstripped other advanced economies by 0.7 per cent over the past 25 years.
...While recent changes to Australia's immigration policies showed it would not be untouched by this shift, which Macquarie sees as structural rather than cyclical, Mr McIntyre said support for immigration was still relatively high compared to other nations. He estimates this support gives the Australian economy a 1 percentage point boost compared to other advanced economies.
The Macquarie report suggests four sectors that should do well over the next few decades: education, tourism, services and agribusiness.
The RBA has opted to leave the official cash rate on hold at 1.5%.
As lenders continue with their out of cycle rate increases, at its board meeting today the Reserve Bank of Australia decided to leave the official cash rate unchanged.
This follows new data released yesterday that indicates the strong Sydney and Melbourne property markets may be close to peaking following APRA's intervention into the levels of interest only and investment lending the banks are funding.
It also appears the Reserve Bank is waiting to gauge the impact of next Tuesday's federal budget on overall economic sentiment.
Despite numerous geopolitical threats (Eurozone elections, tensions between the US and China, North Korea, etc.), worries about the demise of the so-called "Trump trade" and shares being overbought and due for a correction at the start of the year, share markets have proved to be remarkably resilient with only a minor pull back into their recent lows. This despite a more significant fall back in bond yields. Partly this is because the geopolitical threats have not proven to be major problems (at least so far) and Trump remains focussed on his pro- business policy agenda (he has already embarked on deregulation and his tax reform proposals – while lacking in details – indicate that tax reform remains a key objective). More fundamentally though, markets have been underpinned by an improvement in global growth. This is likely to continue.
The RBA provided no surprises following its April board meeting leaving the official cash rate on hold at 1.5%. The RBA remains more confident regarding global growth, see Australian economic growth as moderate, regards the labour market as being mixed, sees a gradual rise in underlying inflation and continues to see conditions in the housing market as varying considerably across the country, but sees recent regulatory measures as reducing the risks associated with high and rising household debt.
This note looks at the outlook for the cash rate, the impact of bank rate hikes and the implications for investors. Read more here
Since the US elections back in November, the 'Trump Trade' has sharply boosted global share markets, based on the promise of lower taxes, less regulation and other 'pro-growth' policies. After a lengthy period of economic 'stagnation' (not quite true), the prospect of Donald Trump ushering-in a thrilling, no-holds-barred period of Reaganesque optimism is an intoxicating idea, no doubt contributing to his election in the first place.
But is all of this about to come unstuck? Quite possibly.
With a Presidency already under fire for possible Russian collusion, bogus wiretapping claims and a myriad of other missteps, you could be forgiven for thinking that you've just stepped out of a time machine and it's 1974 all over again.
Nixon aside, Trump's massively eroded political capital and growing credibility problem points to short-term danger for the sharemarket. If Trump is no longer trusted, or even liked, his capacity to swiftly enact his pro-growth agenda is suddenly at risk, and with it, the quick sharemarket gains made since last November.
And Trump's first litmus test will be tonight's vote on his revised healthcare bill. If the vote doesn't pass or is post-postponed, markets will be rattled. Brace yourself, but don't forget the opportunities that come with uncertainty - we've been here before.
Rick Maggi
The long running soap opera around whether the Eurozone will break up is now into its eighth year!
In 2015 all the focus was on the latest Greek tantrum and last year the big fear was that the populist/nationalist Brexit vote and Trump victory would lead to a surge in support for populist parties across Europe and drive a Eurozone break up.
There was no sign of this in Spanish and Austrian elections, but this will be put to the test again with elections this year in the Netherlands, France, Germany and maybe in Italy.
The fear is that a Eurozone break up will plunge the world’s third biggest economic region into recession and financial chaos, which would adversely affect the global economy and Australia. Such a fear may be exaggerated – the UK hardly imploded after Brexit – but that’s the worry.
From 1 July 2017, a range of super reforms announced in the 2016 Federal Budget will take effect.
For most people, the impact of these changes will be positive or neutral.
Super remains a very attractive place to save for retirement. And there may be opportunities to grow your super and retire with more.
If your income is below $250,000 (for 2017/18), while you build up your super, pre-tax contributions and investment earnings will generally continue to be taxed at the low rate of up to a maximum of 15%, not your marginal tax rate of up to 49%.
Also, when you retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings and payments are generally tax-free at age 60 and over.
Next steps...
Once you have read through this guide, you should consider making an appointment with your financial adviser. They can assess the impact the super reforms could have for you, as well as review your retirement savings plans and the strategies you are using.
Beyond that, as we head towards the end of another financial year, now is a great time to see if there is anything else you could be doing to tax-effectively build and protect your wealth.
If you don’t have an adviser, you call us (Westmount Financial) on 9382 8885 to arrange an appointment.
View a basic, 'at a glance' guide here.
Rick Maggi
