China is seeing a regulatory crackdown on tech companies, the property sector and inequality aimed at supporting its middle class.
The shift to “bigger government” in China likely has further to run.
Chinese economic growth is likely to be soft this half but policy easing and maybe a pause in some regulatory moves should allow a rebound next year.
This will be positive for commodity prices and Australia.
The attached note looks at relative strength of share markets at a time when bond yields have fallen sharply on the back of concerns about the threat to economic activity from Delta coronavirus outbreaks amongst other things. The key points are as follows:
Bonds and shares often diverge – we saw this a year ago with shares rallying but bond yields staying low.
Shares have been boosted by strong earnings news, improved valuations, investor awareness of last years’ experience of a post lockdown bounce back, vaccines providing optimism in a more sustained reopening, some pressure for more stimulus & M&A activity.
While shares remain vulnerable to a correction, the trend is likely to remain up.
The current environment seems to be one of extreme uncertainty. We have seen a strong economic recovery from last year’s global and Australian recessions – but there are worries about the resurgence of coronavirus driven by the Delta variant, peak growth, peak monetary and fiscal stimulus, high inflation, and high debt levels. And ‘get rich quick’ trading around crypto currencies and ‘meme’ stocks like GameStop on the back of the Reddit/WallStreetBets forum phenomenon have seen some question traditional approaches to investing. In the meantime, investors are getting bombarded with more information and views around investing than ever.
Despite this, the basic principles of investing remain timeless. Fortunately, some investment experts have a knack of encapsulating these in a few words that are insightful and inspiring. This note looks at those of particular relevance to the environment investors face today drawing on Sir John Templeton, Jack Bogle, Peter Lynch, Warren Buffett, Aldous Huxley, Frank Zappa, The Beatles and others.
More information here
The attached note takes a look at the renewed rise in coronavirus cases globally and the outbreak in Australia and the implications for the economic recovery. The key points are as follows:
The news on coronavirus has been bleak again lately - with rising cases globally and the ongoing NSW lockdown.
However, there are five reasons for optimism: lockdowns still work against Delta (eg, in SA & Victoria where lockdowns were able to be relatively short because they started early and hard); vaccines are working; once lockdowns end economic activity rebounds quickly; the threat posed by Delta will keep fiscal & monetary policy easier for longer; and vaccinations are ramping up in Australia.
This note takes a look at seven charts we highlighted in January for investors to watch as being critical to the investment outlook this year. Put simply, where are they now? The key points are as follows:
While shares are at risk of a near term correction on the back of coronavirus and inflation concerns, the trend is likely to remain up against the backdrop of continuing economic recovery and low interest rates
Seven key global charts worth keeping an eye on by investors are: the trend in new coronavirus cases and deaths - particularly in the UK; global business conditions PMIs; unemployment & underemployment; global inflation; bond yields; the gap between earnings yields and bond yields; and the $US.
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The note looks at the ever increasing level of noise around investing and how investors can manage it. The key points are as follows:
A surge in financial information and opinion along with our natural inclination to focus on bad news is arguably making us worse investors: more fearful & short term.
Five ways to help manage the noise and stay focussed as investors are: put the latest worry list in context; recognise that shares return more than cash in the long term because they can lose money in the short term; find a process to help filter noise; make a conscious effort not to check your investments so much; and look for opportunities that investor worries throw up.
Read more of the article here
The attached note reviews the investment performance of the last financial year for major asset classes and looks at the outlook for the current financial year. The key points are as follows:
2020-21 saw investment returns rebound after the coronavirus hit depressed 2019-20 returns.
Key lessons for investors from 2020-21 were to: allow that share markets look ahead; timing markets is hard; don't fight central banks; and turn down the noise.
Over the next 12 months returns from a well-diversified portfolio are likely to be slower but still solid.
The attached note looks at the gradual shift towards the exits from ultra-easy monetary policy by major central banks and the implications for investment markets. The key points are as follows:
The gradual shift of central banks including the Fed and RBA towards an exit from monetary easing has caused some volatility in investment markets.
We continue to expect the first RBA rate hike to be in 2023, albeit there is a risk it could come in late 2022.
However, there are five reasons not to be too concerned: central banks are simply reflecting economic recovery; monetary policy remains easy; shares rose through the last Fed taper; share bull markets usually only end when monetary policy is tight; and it's normal in this phase of the investment cycle for returns to slow.
Read here to know more
The attached note takes a look at current concerns about rising inflation. The key points are as follows:
Inflation will likely rise further in the months ahead due to base effects, bottlenecks & reopening but it’s likely to fall back again from later this year as these drivers fade.
Shares face short-term correction risks but as inflation settles the broad trend is likely to remain up.
Viewed in a very long-term context, we are likely now going through the bottoming of the 40-year decline in inflation that’s been in place since the early 1980s.
The Australian economy continues to recovery strongly.
This note looks at the outlook. The key points are as follows:
With growth of 1.8% in the March quarter, Australian GDP is now back above its pre pandemic level.
While uncertainties remain – including around the latest coronavirus outbreak in Victoria – there are seven reasons for optimism that the recovery will continue at a decent rate:
Vaccines
Global growth is ramping up
Consumer spending is well supported
Dwelling investment is likely to remain strong
Business investment is strengthening
Fiscal stimulus is continuing
Monetary policy remains ultra-easy
To know more, click here.
The attached note takes a look at the importance of geopolitical risk for investment markets and key geopolitical risks to watch over the remainder of 2021.
The key points are as follows:
Geopolitical issues generate much interest, but don't necessarily have a significant impact on markets.
But geopolitical risks are higher than prior to the GFC reflecting three big themes: a populist backlash against economic rationalist policies; the falling relative power of the US; and the polarising impact of social media.
After a lull following the transition to President Biden, key geopolitical issues to watch this year are: US and Australian tensions with China; Iran/Israel tensions; Russia and Ukraine; the German election; US tax hikes; and a possible early Australian election.
Read more about the article here
With some distance now between us and the year that changed everything, we look back and consider what we’ve learned from 2020 and reasons for optimism for the rest of this year.
Read more here
With shares coming up to the one year anniversary of their pandemic lockdown driven lows on 23rd March 2020, the attached note takes a look at where we are in the cyclical bull market in shares and the broader investment. The key points are as follows:
The history of cyclical bull markets in shares suggests that the rebound since last March still has a way to go.
But it’s normal for the second 12 months of a cyclical bull market to see slower returns from shares.
While shares are vulnerable to a further correction triggered by the spike in bond yields, we are not seeing the sort of unambiguous overvaluation, economic overheating, monetary tightening and investor euphoria normally seen at cyclical tops.
Read more here
The attached note takes a look at the main questions investors commonly have regarding the investment outlook in a simple Q&A format.
Some of the key points are as follows:
Global recovery is on track. Vaccines are working.
JobKeeper’s end won’t derail Australia’s recovery.
Inflation could become an issue in the medium term.
Shares are at risk of a correction but are supported by economic and earnings recovery.
Australian house prices are booming again but expect measures to slow it down in the months ahead.
Read full article here
The attached note takes a look at the upswing now underway in the bond market.
The key points are as follows:
Higher bond yields are normal in economic recovery and should not be a major problem for shares if they are matched by rising earnings. But too rapid a rise in bond yields risks driving a deeper correction in shares.
Central banks want higher inflation but will look through any short-term spike.
The 40-year downtrend in inflation and bond yields is likely over.
But the fundamental backdrop of improving growth, rising profits and still low rates supports the case for solid 6-12 month returns from shares.
The attached note takes a look at the nine most common mistakes investors make.
The key points are as follows:
Many of the mistakes investors make are based on common sense rules of thumb that turn out to be wrong
As a result, it’s often wise for investors to turn common sense logic on its head.
The easiest way to avoid many of these mistakes is to have a long-term investment plan that aligns your financial goals with your risk tolerance
Click here know more.
Seven key global charts worth keeping an eye on by investors this year are:
the trend in new coronavirus cases and deaths;
global business conditions PMIs;
unemployment;
global inflation;
bond yields
the gap between earnings yields and bond yields; and
the US dollar.
Click here to access these charts
2020 turned out far better for diversified investors than had been feared when the pandemic hit, which triggered plunging market shares and deep recessions. The average balanced growth superannuation funds look like they have returned around 3%. This followed around 15% last year. Balanced growth funds returns have averaged about 7% per annum over the last five years, which is well above inflation and bank deposit returns.
The key points are:
2020 turned out far better for investors than was feared;
2021 is expected to provide solid returns and see a further rotation from pandemic winners to cyclical investments;
Watch: coronavirus and vaccines; US politics; China tensions; inflation; and the hit to immigration in Australia.
Click here to read Oliver’s Insights, and views on the investment outlook.
The linked article takes a look at what Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, sees as the nine keys to being a successful investor, and what impact the coronavirus shock has had on them.
Even in good times, successful investing can be stressful. For this reason, it’s useful for investors to keep a key set of things - call them rules - in mind.
The key rules are:
make the most of compound interest;
don’t get thrown off by the cycle;
invest for the long term;
diversify;
turn down the noise;
buy low and sell high;
beware of the crowd;
focus on investments offering a sustainable cash flow; and
seek advice.
Please click here to read further.
The current surge in gold prices is leading to a record high. The US dollar is falling, and the Australian dollar is rising. The key points of the attached note are as follows:
The US dollar looks to have peaked, in part reflecting reduced safe haven demand with more downside likely.
The gold price has broken out to a record high, reflecting a declining US dollar, investors demand for an inflation hedge and a fall in the opportunity cost of holding gold. More upside is likely.
The Australian dollar has broken higher, reflecting the declining US dollar, along with higher commodity prices and it’s likely the trend will remain up.
Click here to read more