Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 371

Welcome to Firstlinks Edition 371

  •   19 August 2020
  • 3
  •      
  •   

Weekend market update: On Friday, the S&P500 rose again while NASDAQ consolidated its gains, both up about 0.4% on the day, with the indexes recording all-time highs during the week. The headline in Bloomberg said, "Bears are going extinct in stock market's $13 trillion rebound". Yes, the bull is charging for now. The ASX200 fell marginally over the week with big movers during reporting season, especially in IT (Afterpay breached $80) and health. The market shrugged off declines in bank dividends. 

***

The pandemic-induced preoccupation with health problems has eased enough to allow news space for superannuation to regain its place as a political football. Senator Jane Hume, the minister responsible for super, told The Australian Financial Review that further reform is "in the wings", perhaps at the October Federal Budget, and "a more efficient default system" is under development.

The legislated increases in the Super Guarantee, scheduled to go to 10% on 1 July 2021 on the way to 12% by 2024, are also in doubt. Speaking on the ABC's Radio National on 17 August, Ms Hume said she is "ambivalent" about contributions increasing, which is an unexpected fence-sit for a superannuation minister.

"There will be many people, from employees and businesses, that will be concerned that the superannuation guarantee rise comes at a trade-off to their wages and wage increases. It would be irresponsible for a government not to consider that, particularly in light of a pandemic and the economic impact of COVID-19. It is the government's responsibility to make sure that we can persuade the public that the trade-off is the right one to make."

Reserve Bank Governor, Philip Lowe, offered his view to the Standing Committee on Economics on 14 August 2020:

"I don't know whether it would have a negative effect on employment. It would certainly have a negative effect on wages growth. If this increase goes ahead, I would expect wage growth to be even lower than it otherwise would be. So there will be an offset in terms of current income. Some people say that's perfectly fine because people will have higher future income. There's a trade-off: do we want people to have income now, or do we want them to have it later on?"

In response, Prime Minister Scott Morrison said a "rather significant event" had happened since the 2019 election when he promised the increases would proceed.

"They are matters we are aware of and they have to be considered in the balance of all the other things that the government has been doing in this space.’

This week, we take a look at the stoush between Jane Hume and Paul Keating, with the Senator saying protecting his superannuation legacy was "obscene" and Keating calling access to super under the early release scheme "willy-nilly".

Meanwhile, back at the coal face of investing, the S&P500 and NASDAQ both hit all-time highs this week. Happy days for investors. Hamish Douglass explains why he holds 15% of his portfolio in cash, why he can't call between the boom or bust potential, and why he is optimistic about the future.

A capitulation often occurs at extremes in markets, where the rally becomes so strong that even the doubters cast aside their concerns and dunk into the punch bowl. While Hamish has no FOMO, many other fund managers are late arrivals at the party, with Bank of America's latest survey in the US showing they are now overweight equities again in their Asset Allocation (AA) after exiting during the earlier stages of the pandemic.

Not only are they now backing a continuing bull market, but the percentage expecting global profits to improve in the next few years rose recently to 57%.

Hamish also writes about the importance of the US elections, especially the fight for the Senate, but nobody should rule out a Donald Trump victory. There's little doubt he will better Joe Biden in the debates, and Sportsbet reported money flowing for Trump last week pushed his odds of victory down from $2.50 to $2.30 with 88% of turnover for him. Biden eased from $1.60 to $1.75. Sportsbet's Rich Hummerston said:

“The tide again appears to be turning in the US election race. Lots of larger bets are filtering through for Trump and despite being the outsider the support just keeps rolling in.”

The most remarkable graphic I saw this week was The Washington Post's monitor on the US President's movements. How many company executives spend this much time away from home and playing golf?

Fortunately, there's always time to build the greatest economy in the world and save millions of lives:

Also this week on the optimism theme, Matt Reynolds sheds the myopic attention on the next few months and looks 10 years ahead at exciting developments and big investment ideas.

Then Jon Guinness and Sumant Wahi write that the amazing advances in connectivity we are experiencing have only just begun, and it will drive success in many companies outside the mega tech names.

Like many bemused by the market's strength, Robert Almeida confesses that unless revenue growth is much better than in 2019, he simply cannot make the earnings maths work to justify the share prices of many companies.

We like to think of Australia as a global trading powerhouse, so the observations by former Austrade executive, Kevin Cryan, will surprise, as Australia badly lags best practice on trading systems. Home Affairs needs to play a better role in pandemic recovery.

And Jay Kumar delves into the data to show the commonly-held view that small companies outperfrom large companies over time does not hold up in Australia.

This week's White Paper is the 2020 Vanguard Index Chart, giving a reminder of how the market changes every day but delivers strong results over the decades. It's always good to step back for this long-term perspective.

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

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

 

3 Comments
Carlo
August 23, 2020

The superannuation scheme cooked up by Keating, Hawke and the ACTU is a misnomer! It was essentially a clever and imaginative strategy to ensure cessation of the continuing expectation of almost annual wage demands by the unions that were crippling the economy. It worked for the while it took to lower wage demands down the pecking order. I am quite sure also that the concept of Union -driven superfunds was a considered latent strategy that would eventually lift the ACTU funds and investment incomes – through compulsory super.

Governments have continuingly tampered with our super via Official Reviews and other changes. Since Australians not covered by the ACTU had little choice in the matter it should never be considered as legislation for all. Therefore it should not be compulsory. The Old Age Pension should be funded in part by compulsory contributions by all Australians from say 18 years of age and in the workforce – a la UK and USA. Australians should voluntarily have choices on how they equip themselves for their retirement income days. That would stimulate a number of alternative choices – including perhaps a choice of Australia’s ‘reserve” government-initiated Fund. SMSFs would also play a part. Clearly under such new provisions one would hope that employer funds would re-emerge as a way of keeping and attracting good staff.

As a one-time director of ASFA, Chair of several Employer Super Funds, and contributor to several government enquiries into national superannuation, and as SMSF owner, I have long been dissatisfied at the way government superannuation design/changes have continued to put all the emphases on individuals having to bear the whole cost of compulsory super investing even at times of financial crises eg GFC and now Covid 19. Government always moves too slowly to assist superannuants particularly SMSF by pausing/reducing compulsory annual draw-downs; by non-action in forcing lower costs of investment managers/advisors and all players servicing the superannuation members. And incidentally Australia’s actuarial life prediction assessments for annual compulsory drawdowns are questionable. They puzzlingly rate life expectancy of Australians less than the British equivalent. Not only strange but it forces drawdowns that are too high.

Increasingly I suggest that enforced superannuation needs to be presented to the Australian people as a choice. Currently its existence has not substantially reduced the cost of Old age pension entitlements. So why enforced super? And the thought of increasing the amount that Australians have to forgo in wages is surely unthinkable? I think most Australians would be prepared to opt for a scaled contribution to OAPs once in the workforce because the end benefit is predictable. Most would not continue enforced super deductions where the end result is unpredictable, the costs are so high, too many intermediates make oodles from the system and that also reduces end super benefits – if they had a choice.

Peter
August 23, 2020

Over 35 years ago I started investing as much as I could for the future and went without so much to do so. My Mother in law told me I was stupid . I said as the baby boomers grow older there won't be enough Pension money to go around. She said don't be ridiculous there will always be the Pension.She is now 95 ,and recently said to me I wish I had invested for the future. I also get very annoyed when people tell me how lucky I am. Your prosperity has very little to do with how much you earn, but more to do with how you manage your money.

Steve
August 20, 2020

What happens when certain lobby groups work to destroy the businesses of a large section of the 20,000 strong distribution team. These advisers become a more formidable lobby group, quite happy to see the glass house crack. When the advisers are sent broke by unworkable Govt - left wing red tape, they have nothing to lose but to help bring the whole edifice down.

 

Leave a Comment:

     
banner

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
Interviews

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.

Shares

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.

Retirement

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.

Shares

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.

Economy

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.

Retirement

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.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
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.