Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 433

Welcome to Firstlinks Edition 433 with weekend update

  •   11 November 2021
  • 2
  •      
  •   

The Weekend Edition includes a market update plus Morningstar adds free links to two of its most popular articles from the week.

Weekend market update

From AAP Netdesk: The benchmark S&P/ASX 200 index closed the week at 7443, up 61.1 points (0.83%) on the day.

Positive market sentiment was driven by news that distressed Chinese property company Evergrande had managed to make coupon payments, thereby technically avoiding default. A formal default that would have worsened a debt crisis in the China's property market and led to knock on effects in the construction and steel sectors.

All sectors bar healthcare ended higher, with materials, energy and consumer staples leading the march. Local energy stocks were also higher after crude oil prices climbed above US$83 a barrel, with Santos and Oil Search trading around 2% higher, while Woodside gained 1%.

The Australian dollar eased against a firming US dollar, after a strong US inflation reading. It was trading at 72.92 US cents against the greenback, down from 73.11 US cents at Thursday’s close.

From Shane Oliver, AMP Capital: Australia’s unemployment rate is likely to be messy around 5% into year-end (depending on what recovers fastest – employment or participation), by end next year we see it around 4% and we are sticking to our view that the first RBA rate hike will come around November next year.

In the US, small business and consumer confidence fell but job openings remain high and jobless claims fell. CPI inflation accelerated in October to 6.2% year-on-year which is its highest since 1990, resulting in median inflation pushing up to 3.1%yoy. US September quarter earnings have come in 9% stronger than expected. The US share market has now rallied through each of the last seven reporting seasons.

Source: Bloomberg, AMP Capital

Japanese confidence rose sharply in October, producer price inflation also accelerated to 8% year-on-year, but the flow through to consumer prices is likely to remain weak particularly with wages growth slowing to just 0.2%yoy. Chinese economic data was mixed with stronger than expected exports, weaker than expected imports and credit growth looking like it may have bottomed at 10%yoy. Producer price inflation surged further to 13.5%yoy, but consumer price inflation remains weak at 1.5%yoy.

-----

In this week’s edition of Firstlinks I get to put pen to paper (or more accurately fingers to keyboard) in reprising, and updating, a piece I wrote eight years ago.

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

Statisticians from Columbia University were engaged to confirm these findings. Instead these outsiders pointed to a flaw in the military groupthink; the areas where the holes were weren’t the most vulnerable, they were the least. The generals couldn’t see the holes that were taking down their bombers, which in the returning aircraft were areas where the holes weren’t. Those needed strengthening instead.

Australia’s superannuation system is similarly prone to groupthink and confirmation bias, leading to systemic weaknesses. Those who live it, breathe it and work within it are often least able to see it as it truly is, warts and all. It therefore helps to have the occasional ‘outsider’s view’.

That’s why this week I revisit the Mercer CFA Institute Global Pension Index, comparing the most recent report with one from 2013.  The super system has been on quite the rollercoaster ride in the intervening years, and my piece attempts to put our system in its rightful global context.

Don Ezra then picks up the story, looking at ‘decumulation’, as he notes possibly the “hardest problem in finance”, to provide some handy hints on how to sensibly live on your retirement nest egg when you can’t possibly know in advance how long it needs to last.

The recent commencement of the ‘Your Future, Your Super’ rules will almost invariably result in some consolidation amongst APRA-regulated super funds. There have already been several recent high-profile announcements, a trend that’s likely to escalate. There can, however, be a tension between the benefits of scale on the one hand, and sufficient competitive tension on the other.

David Gallagher and Graham Harman turn their attention to what consolidation might mean, in light of a current House of Reps Standing Committee on Economics inquiry into common ownership and increasing shareholder concentration by fewer, larger, superannuation funds.

World leaders might now be home, having made their appearances at the opening of the COP26 climate summit in Glasgow, but now the real work begins. Not just by their teams left behind to put a workable framework around targets for achieving net zero carbon emissions, but by stakeholders globally. Of which the investment management sector, being custodian to the current and future wealth of so many, is a critical one.

So this week features two articles on aspects of investing through an Environmental, Social and Governance (ESG) lens.

Andrew Lockhart and Alison Chan look at the role of ESG investing in private markets, an area with its own special challenges, given the differences in disclosure requirements between publicly listed companies and those who remain privately held.

Alison Savas then continues the ESG focus, looking at how companies are already ‘decarbonising’, and what this might mean for you as an investor. Interesting to see how looks can be deceiving, with the south-west region of the US already generating more than 10,000 Megawatts (MW) of electricity via utility-scale solar plants. According to the Clean Energy Council, Australian large-scale solar generation was approximately 4,000 MW during 2020 by comparison.

In the world of commercial property, the industrial and logistics segment has traditionally been seen as the unglamorous sibling to A-Grade office and high-end retail. Yet in a post-COVID world, demand for warehouse space to fulfil e-commerce sales, and demand for cold storage and food logistics, is changing the dynamics of property investing. Steven Bennett and Sass J Baleh take a look at this interesting corner of the property market from an investor’s perspective.

What gets measured gets managed. This week’s edition is rounded-out by a piece from Morningstar’s Ben Johnson. Ben looks at the important, but under-appreciated, considerations that go into selecting an index against which to compare an investment strategy.  Good indexes have certain characteristics that enable them to provide an effective and efficient benchmark for performance comparison, and Ben walks readers through what to look for in a suitable index.

We got a clear signal this week that US inflation is here and increasing much faster than many predicted. The Consumer Price Index rose to 6.2% in October year-on-year, the largest such increase since 1990. Inflation affects investors differently. For those with concerns, Dave Sekera highlights six inflation-tough stocks for global investors. And the Carlyle Group's latest offer for Link Administration is unlikely to be its last attempt to wrest control of the superannuation administration service provider writes Lewis Jackson.

This week’s Comment of the Week comes from Chris Darby in response to “Trust your instinct”, a conversation between Hamish Douglass of Magellan and Sir Frank Lowy AC, founder of Westfield Corporation (now Unibail-Rodamco-Westfield):

“There are some out there who need to heed the advice of the Lowy family, If you have a little, give a little, if you have a lot, give a lot, it would make this world a better place. Inspirational Sir Frank!”

This week’s white paper is available to you courtesy of MFS on Emerging Market Debt (EMD), looking at fixed interest securities such as bonds issued by governments, quasi-governments and potentially corporates (depending on the index used) in emerging economies. The paper covers issues surrounding exchange rate risk, and how to mitigate it, in this lesser-known yet interesting asset class.

 

Harry Chemay, Guest Editor

 

Upcoming events

nabtrade's Charity Trading Day 2021 is on 23 November 2021. Brokerage will be donated to UNICEF's Give the World a Shot campaign and the ASX Refinitiv Charity Foundation.

Virtual Investment Forum: 23 and 25 November 2021, hosted by the Australian Shareholders' Association: Graham Hand will be presenting a session on 'How to build a balanced portfolio using ETFs'. For more information and to register, click here.

Latest updates

PDF version of Firstlinks Newsletter

Australian ETF Review from BetaShares

IAM Capital Markets' Weekly Market Insight

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

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

LIC (LMI) Monthly Review from Independent Investment Research

Monthly Investment Products update from ASX

Plus updates and announcements on the Sponsor Noticeboard on our website

 

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

The greatest investor you’ve never heard of

Jim Simons has achieved breathtaking returns of 62% p.a. over 33 years, a track record like no other, yet he remains little known to the public. Here’s how he’s done it, and the lessons that can be applied to our own investing.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Shares

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Property

Baby Boomer housing needs

Baby boomers will account for a third of population growth between 2024 and 2029, making this generation the biggest age-related growth sector over this period. They will shape the housing market with their unique preferences.

SMSF strategies

Meg on SMSFs: When the first member of a couple dies

The surviving spouse has a lot to think about when a member of an SMSF dies. While it pays to understand the options quickly, often they’re best served by moving a little more slowly before making final decisions.

Shares

Small caps are compelling but not for the reasons you might think...

Your author prematurely advocated investing in small caps almost 12 months ago. Since then, the investment landscape has changed, and there are even more reasons to believe small caps are likely to outperform going forward.

Taxation

The mixed fortunes of tax reform in Australia, part 2

Since Federation, reforms to our tax system have proven difficult. Yet they're too important to leave in the too-hard basket, and here's a look at the key ingredients that make a tax reform exercise work, or not.

Investment strategies

8 ways that AI will impact how we invest

AI is affecting ever expanding fields of human activity, and the way we invest is no exception. Here's how investors, advisors and investment managers can better prepare to manage the opportunities and risks that come with AI.

Sponsors

Alliances

© 2024 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.