Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 438

Welcome to Firstlinks Edition 438 with weekend update

  •   16 December 2021

This week's interview with Hamish Douglass has been quoted from extensively in newspapers including as the Australian Financial Review and Sydney Morning Herald. It gives perspective to the statement to the ASX by Magellan Financial Group (ASX:MFG)

"The trading halt is being requested pending an announcement to be made by MFG. The announcement relates to the termination of a material contract."

Media reports are that the contract relates to the £10 billion ($18 billion) mandate from UK wealth management firm, St James’s Place, a long-term client of Magellan.


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

Weekend market update

From AAP Netdesk: The S&P/ASX200 index closed up 8 points, or 0.1%, to 7,304 points on Friday. The market had its fifth week of decline (0.7%) in the past six. In stock news and moves, National Australia Bank held its Annual General Meeting and shares were up 0.3% to $28.83. The Commonwealth had the biggest gains of the banks. It rose 2.4% to $99.12. Magellan Financial Group's shares swapped higher by 1.8% before the trading halt news. Transurban will pay $2.22 billion more for Melbourne's West Gate Tunnel project after settlement between contractors and the Victorian government. The project, originally slated to be finished in 2022, has been extended to 2025. Shares were down almost one per cent to $13.53.

Among the larger miners, BHP added 1.8% to $41.40, Fortescue gained about 1% to $18.98, Rio Tinto was even at $98.00. Oil Search will disappear from the ASX after its $21 billion merger with Santos took effect.

From Shane Oliver, AMP Capital: Global share markets mostly fell over the past week with worries about the latest coronavirus wave and central bank monetary tightening and tech stocks remaining under pressure. For the week US shares lost 1.9%, Eurozone shares fell 0.9% and Chinese shares fell 2%, but Japanese shares rose 0.4%. The soft global lead not helped by surging coronavirus cases locally saw the Australian sharemarket fall with declines in health, IT and retail stocks offsetting gains in material, utility and property stocks. Long term bond yields and the oil price fell, but metal and iron ore prices rose.

On Friday in the US, the S&P500 lost 1% while the NASDAQ was flat.

Over the last 10 years, the period from mid-December to year end has seen an average gain of 0.4% in US shares with shares up in this two-week period six years out of 10. In Australia, over the last 10 years, the average gain over the last two weeks of December has been 1.4% with shares up seven years out of 10, although it hasn’t worked over the last two years.


Inflation ... it seems such a dry subject and Firstlinks does not normally spend much time on a macro theme, but this is a fascinating and unique moment. The US CPI is up 6.8% in the last 12 months but the 10-year US bond is holding at around 1.5%, pushing the real yield to an unprecedented minus 5.3%. Central bankers are responding. US Fed Chair Jerome Powell and the Reserve Bank's Philip Lowe fear inflationary expectations are becoming baked into prices and wages. Powell said in 2018 of the Federal Open Market Committee (FOMC):

"The reality or expectation of a weak initial response could exacerbate the problem. I am confident that the FOMC would resolutely ‘do whatever it takes’ should inflation expectations drift materially up or down or should crisis again threaten."

'Do whatever it takes' in raising rates is a big change for a central banker who has been waiting for firm evidence before moving. For most of his first term, Powell (like Lowe) wanted to see inflation higher, which he referred to as 'achieving the goal'. He would be happy to see it settle anywhere from 2% to 3%.

Overnight, the Fed doubled the pace of bond tapering and forecast three rate hikes in 2022 and another three in 2023. The Fed noted that:

supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation”.

Powell said the Fed Funds rate increases could start as early as March 2022 as there is a "real risk high inflation becomes entrenched".

Meanwhile, as this screenshot from the AFR this week shows, the stockmarket was not worried about the high CPI number as it pushed to a record high. It's a remarkably sanguine view.

In Australia, the drop in immigration has encouraged a rise in wages, as the chart below shows. Expectations are that a return of net migrants towards the recent norm of 200,000 or more a year would have the reverse effect, and reduce the pressure on rising rates. This is why Omicron is so important for inflation, as case and hospital numbers may threaten the return of foreign labour.

So inflation, wages, the virus and house prices are all linked, and Hamish Douglass gives some important warnings in our edited transcript of his presentation to Stanford Brown clients this week. Douglass touches on some issues at Magellan that have made headlines this week, including explaining underperformance, but it is his worries about the virus and inflation, plus a black swan of a Middle East war, which are most important for investors. He shows why conditions are so dangerous and the markets are 'playing with fire':

"We're watching this party of the century occurring at the moment and I feel like the person who is failing the ID check at the door."

Meanwhile, Social Services Minister Anne Ruston announced this week that the Pension Loan Scheme would be renamed the Home Equity Access Scheme with a couple of important tweaks: from 1 January 2022, the interest rate will fall from 4.5% to 3.95%, and from 1 July 2022, lump sums of $12,000 a year for singles and $18,000 for couples can be drawn. The name change is good because the scheme is open to Australians aged 66 and over who own residential property and not only those on the age pension.

In other potential news, a friend told me on Thursday that his banker had called him late in the day to come to the office and sign loan documents on a new transaction. He was told mortgage lending rules will be changing on Monday. APRA is at least six months late cracking down on runaway prices but macroprudential tightening seems to be underway. 

Perhaps it is one response to charts like this. While falling auction clearance rates might be expected to deliver some respite for the next generation of home buyers, CoreLogic shows a lift in mortgage activity:

"CoreLogic systems monitor more than 100,000 mortgage activity events every month across our four main finance industry platforms ... the Mortgage Index provides the most timely and holistic measure of mortgage market activity available."

The pandemic has accelerated many trends, particularly in tech, creating faster growth paths for some companies. Shannon McConaghy identifies three companies benefitting from such changes. But there is less focus on the other side, where the market is expecting pandemic patterns to continue, and two of these are identified as shorting (selling) opportunities. That's one of the strengths of managing a long/short portfolio.

Two articles from legends of Australian financial markets with well over 100 years in markets between them. For 40 of those years, Don Stammer has been recording the market's annual X-Factor ... the big issue of the year likely to have a major impact next year, and he also shows his full 40 year list. Lots of issues long since considered irrelevant. Then Noel Whittaker explains why financial advice is worthwhile for all retirees, as he describes some little-known rules that could be costly if ignored.

Still on great hints for later in life, Rachel Lane analyses the claim that people need the proceeds from their house sale to pay for aged care services. Owning a home has many advantages and selling it may not be the best strategy.

Fixed interest funds may seem like the poor cousins of equity funds, with less of the glamourous stock stories and elevated returns in booming markets. But as Andrew Cummins and David Hutchinson show, many investors and financial advisers still rely on a core group of fixed interest funds for their income, capital protection and diversity, and they reveal the funds that have identified what these investors need.

Then James Abela and Maroun Younes reveal the global themes they follow in managing a portfolio of mid-sized companies where the investible universe is immense. What do they look for to whittle down the almost unlimited choices?

Going back a couple of weeks, an article on green hydrogen by Michael Collins drew many comments, including an expansion of the ideas by Allan Blood. The technology becomes even more relevant when we read this week that our truck transport system depends heavily on diesel topped up with AdBlue, which uses urea, most of which comes from China. We are learning more about our dependency on fragile global supply chains, another subject that Hamish Douglass covers.

Two bonus articles from Morningstar for the weekend as selected by Editorial Manager Emma Rapaport

Remember meme stocks? 2021 started with a bang, as social-media-fuelled trading led to massive returns along with huge up and down price swings. But heading into 2022, much of the buzz has worn off for these stocks, writes Jakir Hossain. And, if you're anything like the staff at Morningstar, summer is a time to escape the market tumult, reflect and perhaps learn a new approach. So here's a selection of books that engrossed the team over the year - Morningstar Summer Reading List 2021/22

And I was struck by a comment by Harold Mattner on my article on the stocks I expect to own for decades despite my market pessimism:

"Thanks Graham for all your articles…thoroughly enjoyable and useful. I lost money for the first twenty years of investing, and reached a stage where I had to change, or give it up. I found investing was an extension of who I was as a person, so to change oneself before I could change my investing style was quite an insight."

This week's White Paper from Antipodes is a quick read with useful charts on the global outlook for 2022, noting the impact of the withdrawal of stimulus, the threat of inflation and a few surprises.

Graham Hand, Managing Editor


Latest updates

PDF version of Firstlinks Newsletter

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

Monthly Investment Products update from ASX

Plus updates and announcements on the Sponsor Noticeboard on our website



Leave a Comment:


Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.


2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.


Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.


What were the big stockmarket listings in record 2021?

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.


Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.



© 2022 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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.