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Welcome to Firstlinks Edition 374

  •   9 September 2020
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Weekend market update: On Friday in the US, the broad market was flat but NASDAQ continued its recent weakness, falling another 0.6%. From a 12 month low of 6,631 to a high of 12,074, NASDAQ is still a big winner but the move back now to 10,850 over the last two weeks is a technical 'correction' that will scare some new entrants. The S&P/ASX200 also fell for the fourth consecutive week, losing 0.8% on Friday and down 1.1% for the week.

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Suddenly, it's the middle of September and we don't hear much about 'snap back' anymore. Now we have 'road maps'. Six months ago, I was flying back from Antarctica after two weeks aboard the ill-fated Greg Mortimer cruise ship. Passengers on a following trip were stranded for a month in Montevideo, Uruguay, and most caught COVID-19. In March, the Government doubled the 'dole' and introduced JobKeeker on such generous terms that major listed companies drew on it by the million and many people received a large income boost. But it was all supposed to end in September with a 'snap back', yet here we are with stimulus extensions in place.

Notwithstanding our love of travel, most Australians would rather be home than anywhere else at the moment. Just ask the two Australian journalists who escaped from China as our relationship deteriorates. 

During the first few months of the pandemic, I wondered why India was not in dire straits. Surely, a billion people living in close proximity with a requirement to go to work each day would be a disaster, but stories ran on why India was coping so well. Now, with 90,000 new cases a day versus Brazil at 30,000, India is second to the US in total cases and has the most deaths per day. We can only imagine the tough conditions faced in many other countries.

Even in wealthy Australia, with unlimited government borrowing capacity and an excellent health system, thousands of businesses have collapsed and a million people have lost their jobs. The first level of the September 'cliff' is fast approaching. From 28 September, JobKeeper falls from $1,500 to $1,200 a fortnight for those actively engaged in the business for 80 hours or more a month and to $750 for all others. Business is given more administrative and compliance complexity. And then from 4 January 2021 to 28 March, the payments fall to $1,000 and $650 respectively.

The stimulus enjoyed by companies such as Harvey Norman, Kogan and JB HiFi from the initial generosity (a part-timer on $100 a fortnight was suddenly eligible for $1,500) is about to hit a wall.

And then there's super access. It was notable that the ATO felt obliged to issue a warning last week on the early access to super. It's not quite a repeat of Senator Jane Hume's "It's your money" and "Australians who have made the decision to access their super early can rest assured that the Morrison Government trusts them". Said the ATO:

"We're managing the eligibility criteria with strict guidelines and will take action when we identify fraud or people seeking to exploit the program ... If you apply and you're not eligible at the time of submitting your application, we will take action. If you are unable to demonstrate your eligibility when we ask for evidence, we may revoke the determination issued for your application ... If you provide false or misleading information you could face penalties of more than $12,000 for each false and misleading statement."

$12,000 is more than the average super withdrawal of $7,683. With 2.5 million early release applications received, the ATO has indicated it is stepping up checking using Single Touch Payroll (STP) systems, income tax returns, information reported by super funds and third party data from Services Australia. Compliance is necessary but it doesn't sound much like "rest assured that the Morrison Government trusts them".

The residential housing market is surprisingly resilient in the face of the virus, with modest price falls over the last six months after a strong end to 2019. While loan commitments are below pre-COVID levels, new data is robust with the ABS reporting this week:

“July owner occupier home loan commitments rebounded with the largest month-on-month rise in the history of the series, as social distancing restrictions eased in most states and territories."

New loan commitments, total housing (seasonally adjusted)

Gareth Aird from CBA Economics wrote:

"We expect dwelling prices to continue to decline at a modest pace and to trough in Q1 21. But we expect a solid recovery in prices from H2 21 as the borrowing cost once again becomes the dominant influence on prices."

In this week's edition ...

We start with four simple checks from Morningstar analysts on what to do with your investing during these volatile times, especially as the NASDAQ stocks which have driven the S&P500 to record highs are showing their first significant weakness since March. 

With so much happening, it's time to update your attitudes. Our survey checks your reaction to recent policies and your COVID-19 responses using similar questions asked in April 2020. Please participate to give the widest sample and we will report the results next week.

Regardless of anyone's personal ethics, there is plenty of evidence that ESG investing adds value. Our Interview Series continues with the CEO and CIO of Australian Ethical on how they make ethical investing count in many ways, and what they think of the current market.

The recent reporting season showed a wide variety of results for listed property trusts, and Jonathan Kriska explains why this is one sector where strict stock selection is required.

Bill Ackman is a leading investor and hedge fund manager who made millions out of COVID-19. In this extract from his recent Shareholder Letter, he identifies Australia's super system as an example of the way more Americans can reap the benefits of capitalism. Why do we criticise a good system so much?

As in many countries, Australia's family-run companies show consistent outperformance, benefitting from a complete knowledge of the business. Andrew McAuley identifies them and trends around the world. Then Richard Ivers identifies three stocks he likes due to their ability to exploit technology trends.

SMSFs are not only tax-efficient vehicles for controlling the cost of investing with more choice, but they facilitate passing of wealth to future generations. Karen Dezdjek warns about including an Enduring Power of Attorney.

David Bell is leading a group of industry experts working on a standard definition of growth and defensive assets. Given the widespread use of the distinction and the difficulty comparing 'balanced' funds, it's important work that you can contribute to.

And let's look out for each other with a more sympathetic ear. The latest research by The Medical Journal of Australia found that significant feelings of depression or anxiety were being experienced by 25% of people after the COVID-19 restrictions. With the Government announcing a deal with AstraZeneca this week, it was disappointing to read about a setback in their trials. National Deputy Chief Medical Officer, Nick Coatsworth, played down the adverse reaction, saying the deal was not dead but investigations are underway.

This week's White Paper from BetaShares is the August 2020 ETF Review, showing Exchange Traded Funds now exceed $70 billion for the first time, a clear lead over LICs and LITs by $25 billion. As recently as January 2019, the LIC/LIT segment was bigger than ETFs.

As a special offer to Firstlinks readers, register for the Morningstar Individual Investor Conference 2020 held on 29 and 30 October on this link using the discount code EARLYBIRD20 for a ticket at $9.90 instead of $49.90. Online sessions with Firstlinks regulars such as Hamish Douglass, Noel Whittaker, Chris Cuffe and many more.

 

Graham Hand, Managing Editor

 

Latest updates

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Australian ETF Review from BetaShares

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Monthly market update on listed bonds and hybrids from ASX

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

Latest LIC (LMI) Monthly Review from Independent Investment Research

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