Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 368

Welcome to Firstlinks Edition 368

  •   29 July 2020

Weekend market update: the S&P/ASX200 fell heavily on Friday to drive a 1.6% loss for the week due mainly to worries about the virus impact in Victoria. The US S&P500 was far stronger, up another 0.8% on Friday with NASDAQ leading the way, up 1.5%. The market quickly shrugged off the huge fall in US June quarter GDP, down 9.5% quarter on quarter. Many parts of the world are experiencing rising virus cases again, and European stocks fell 3.6% with Japan down 4.6% over the week. 


Differences of opinion create a market. Technology stock buyers have been the big winners recently but there are plenty of sellers as it's not difficult to make a compelling argument for and against the sector.

The doubters say speculative money flowing into tech has pushed values well beyond fundamentals, with the NASDAQ tech index up about 17% this year and 21% per annum over three years. The S&P500 is down 1% this year and up 9% per annum over three years. We have never seen NASDAQ dominate trading volumes versus the New York Stock Exchange as much as now.

In many presentations over recent years, I have said that every portfolio can justify an investment in the leading technology stocks. I remember when BetaShares launched its NASDAQ100 ETF (ASX:NDQ) in May 2015 at $10, it was an ideal vehicle for Australian investors to gain easy and inexpensive access to the best US companies. It now trades at $24.80. However, just three stocks - Apple, Amazon and Microsoft - now comprise over one-third of the NASDAQ index. As they are worth more than the GDP of Germany, the case is not as strong as before with much future success built in. The threat of regulation over their near-monopoly positions is greater than ever.

The main case for tech at these levels is that the future growth which would have taken years without COVID-19 has been compressed. Indeed, as shown below, e-commerce has achieved 10 years of growth in only three months, so future value has been brought forward into the current prices which makes them easier to justify.

As Arvind Krishna, CEO of IBM said recently:

“The trend we see in the market is clear. Clients want to modernise apps, move more workloads to the cloud and automate IT tasks. They want to infuse AI into their workflows and secure their IT infrastructure to fend off growing cybersecurity threats. As a result, we are seeing an increased opportunity of large transformational projects.”

On the other side, an equally salient argument is made this week by Roger Montgomery, who has seen plenty of booms and busts in his three decades of investing. This is one party he doesn't even want to attend, never mind leaving early before the champagne runs out.

Then in an interview with Gofran Chowdhury, he describes how his clients have changed their investment patterns in recent months, with caution that the full impact of COVID-19 is yet to hit.

Sean Fenton and James Delaney see major company beneficiaries from the pandemic, and their process allows them to go long the expected winners relative to the expected losers. Low interest rates also benefit growth stocks.

There's a popular view that the generations are 'at war', many against the Baby Boomers, with the pandemic creating new tensions. Emma Davidson investigates whether we have more to connect us than separate us.

Rarely has gold generated so many headlines as it touches US$2,000 amid rising global geoplitical and economic risks. Jordan Eliseo asks whether we should consider gold as a growth or defensive asset in a diverse portfolio.

Large superannuation funds are predominantly active share investors, priding themselves on their investment prowess over passive alternatives. Donald Hellyer dives into the numbers to see if the confidence is warranted.

COVID-19 has wreaked havoc on many sectors but greenhouse gas emissions have fallen. Lise Moret says society has an opportunity to build on improvements and create a greener future.

These are difficult times to build the bond part of a portfolio, especially when the Australian Government yesterday issued $15 billion (with demand for $37 billion) of 30-year bonds at a yield of only 1.94%. The 10-year rate is about 0.8%. It's all part of funding the large budget deficits, an unavoidable necessity to support the economy, and at least it is being done at low rates. The Port of Brisbane recently launched a deal with $2.75 billion of bids for a $500 million issue. There's a lot of cash chasing low rate, high quality bonds, and with headline inflation negative in the June quarter, investors know rates are not rising anytime soon.

To assist in portfolio construction in these tough conditions, this week's White Paper from Vanguard is its latest Asset Allocation Report, showing investors are incorporating caution into their outlooks.

Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

Latest updates

PDF version of Firstlinks Newsletter

Latest ETF Quarterly Report from Vanguard

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website



Leave a Comment:


Most viewed in recent weeks

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Welcome to Firstlinks Edition 374

Suddenly, it's the middle of September and we don't hear much about 'snap back' anymore. Now we have 'wind backs' and 'road maps'. Six months ago, I was flying back from Antarctica after two weeks aboard the ill-fated Greg Mortimer cruise ship, and then the world changed. So it's time to take your temperature again. Our survey checks your reaction to recent policies and your COVID-19 responses.

  • 9 September 2020

Reporting season winners and losers in listed property trusts

Many property trust results are better than expected, with the A-REIT sector on a dividend yield of 4.8%. But there's a wide variation by sector and the ability of tenants to pay the rent.

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 376

The US tech index, the NASDAQ, peaked on 2 September 2020 at 12,058 and three weeks later closed at 10,632. On the same days, Apple hit US$137.98 and then fell to US$107.12. These falls of over 10% and 20% seem high but both were simply returning to their early August levels. It's hardly a rout when a month's gains are given back. The bigger issue is whether such stock corrections will scare off the retail 'Robinhood' traders.

  • 24 September 2020
  • 2

Interview on new technologies with more potential to grow

For many global tech companies, COVID has boosted their revenues and pushed share prices to all-time highs. We are on the cusp of amazing technical advances and there are plenty of new opportunities.


Five reasons why Tesla is the everything bubble

As fewer professionals actively research the merits of a company’s prospects, stocks become disproportionately driven by capital flows. Prices disconnect from fundamentals and there's no better example than Tesla.


Three retirement checks for when you have enough

Not every retiree needs to gun for higher returns, but a conservative portfolio can court its own risks, especially with bond rates so low. But some retirees prefer to settle for a lower income.


Hide and seek: the FX impact on global equity investments

As more Australians tilt their investments to global equities, they often overlook the exchange rate risk and fees. The move from US57 cents to US73 cents in six months shows the unhedged impact.


When America sneezes, the world catches a ...

The recovery from COVID-19 is looking more like a K-shape, with some companies doing well while others struggle. The pandemic seems more akin to a black swan, exogenous shock than a structural downturn.


How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.



© 2020 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.