I’m pleased to announce that Simonelle Mody will be taking over as the new Firstlinks’ editor.
Throughout the process of finding a new editor I’ve been thinking a lot about Graham and James. I wanted to find an editor who respected what they built and who was bold enough to ensure that Firstlinks continues to support the evolving needs of investors in Australia.
I’ve been working closely with Simonelle over the past several years and after a wide-ranging search for a new editor it was clear that she is the right person to take charge of Firstlinks.
I’m a big fan of Simonelle and over time I’m confident the Firstlinks community will feel the same way.
I wanted to thank everyone for their support over the last six months during my temporary stewardship of this publication. As always, I can be reached at [email protected] and will continue to try and do my part to help people build a better future at Morningstar. I’m looking forward to seeing where Simonelle will take Firstlinks.
Mark LaMonica
Simonelle Mody:
I’d like to begin by saying that I am incredibly excited to step into this role.
Many of you have been with this publication since the days of thoughtful stewardship under Graham Hand and Chris Cuffe, James Gruber and more recently, Mark LaMonica. I take seriously the responsibility of carrying that legacy forward. I’m deeply aware that I’m joining a community with a long memory, strong views, and a shared commitment to understanding the forces that shape our financial lives.
A little about me
I’ve worked at Morningstar for almost two years now, and while I’m younger than the typical Firstlinks reader, I’ve always thought that good investing and good thinking are ageless. What I love most about this work is the chance to explore the intersection of investing and human behaviour.
Over two decades ago, my parents came to Australia with the same hopes many of you likely have for your own families. The idea that if you work hard, play fair and contribute to your community, this country gives you a fighting chance to build a good life. And indeed, it has.
Australia has given us stability, opportunity and the kind of environment where effort translates into progress. I’m acutely aware that very few countries work this way. This indebtedness and gratitude informs everything I do. And it is why I care so deeply about the long-term decisions we make as a nation, especially the ones that affect our economic resilience and the opportunities available to future generations.
We’re living in a time when public debate is increasingly polarised. Politics touches everything from superannuation settings to tax policy to global markets. In stepping into this role, I want to acknowledge something many of you have been thinking about – the Federal Budget.
I tend to look at Budgets with a mix of curiosity and healthy scepticism. While governments of all stripes like to frame their decisions as win-wins, investors know better than most that every choice has an opportunity cost. I think what matters is that we discuss these issues with a focus on long-term implications, rather than give in to the allure of shock value headlines. That is something this community has always valued, and it’s a perspective I share.
The direction of Firstlinks
My aim is to keep this a place where ideas are examined on their merit. A quote I often return to is “Strong opinions, loosely held.” Most of us form views based on experience, instinct and the patterns we’ve seen over time. But I believe the real strength is a willingness to update those views when the facts change. I’d like to think many readers already live by this principle. You’ve seen enough cycles to know that certainty is merely an illusion, that markets punish dogma, and good decisions come from testing ideas rather than defending them at all costs.
Firstlinks has always been a forum for thoughtful and intelligent discussion and that won’t change. You’ll see a mix of familiar contributors and perhaps some new voices, but the principles remain the same. I look forward to learning from readers, hearing your perspectives and continuing the conversation that makes Firstlinks what it is.
Also in this week's edition...
Sebastian Mullins from Schroders shares why the new market regime means investors should choose their hedges wisely and often.
Income is re-emerging as a dominant driver of returns as the Australian credit landscape shifts. Phil Strano from Yarra Capital Management discusses yields taking centre stage again.
It's been a rough time for Aussie equities relative to global peers. Jamie Wickham explores whether investors need to rethink their international equity allocations.
Bubble talk is rampant following the eye-watering launch of SpaceX, but Damien Klassen believes investors may be focusing on the wrong thing.
Isaac Gross models why raising the GST to combat inflation can lead to a sharp turn in the wrong direction.
Tyger Fitzpatrick looks at why most Australians will end up owning SpaceX whether they like it or not.
Following several budget backdowns, Lauchlan Mackinnon examines whether the government is being honest about its business CGT changes.
This week's white paper is from Neuberger on the growth of asset-based finance as an income investment.
Curated by Simonelle Mody and Leisa Bell
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Weekend market update
From Shane Oliver, AMP
The past week saw global shares fall with tech shares under renewed pressue on concerns about an AI bubble and valuations, with reports that a ship had been struck by a missile while moving through the Strait of Hormuz not helping and adding to concerns that the Strait’s reopening and the US/Iran peace deal was fragile. Partly reflecting the weak global lead along with lower commodity prices and profit taking in the banks the Australian share market also fell with a decline of around 0.9% for the week. While consumer and health shares rose this was more than offset by weakness in tech, resources, telcos and financials.
Bond yields fell as the fall in the oil price reduced concerns about inflation. But prices for metals, iron ore, gold and Bitcoin also fell not helped by a further break higher in the US dollar, partly due to expectations for the Fed to raise interest rates this year. This also weighed on the $A which fell below $US0.69.
Bitcoin and gold are getting hit by expectations for Fed rate hikes - which will raise the opportunity cost of holding them - and the rising $US - as they are both priced in US dollars and benefit from being seen as a hedge against a falling US dollar. With the rise of AI and associated trades, Bitcoin and crypto have also lost some of their gloss and excitement value lately as they are no longer seen as new.
From its high in October last year Bitcoin has fallen around 53% but because it has historically gone through roughly an 80% fall every four years – many worry that it’s in another crypto winter with potentially more to come. Consistent with this its now showing signs of breaking below its February and early June lows which were providing technical support. Of course, if it’s able to bottom here then it may be seen as very positive potentially breaking out of the four-year cycle as it matures.
Despite a rocky start and ongoing uncertainty highlighted by Iran reportedly attempting to reassert its control of the Strait, reports indicate the US/Iran talks towards a permanent peace deal are going well. This has contributed to a further fall in oil prices to now being only a few dollars above where they were before the War started.
Oil price falls will partly offset the wind back of the fuel tax cuts in Australia. The Government has announced that its 32 cents/litre fuel tax cut will be reduced to 16 cents a litre from 1 July and after 2 August it’s scheduled to end. From current average capital city petrol prices of around $1.58 cents/litre this implies a rise to $1.74 on 1st July and then to $1.90 on 2nd August. However, current petrol prices are about 11 cents a litre below where they were just before the War started and the lagged flow through of the fall in oil prices over the last two weeks implies a drag of around 10 cents a litre. So, the net effect is that at current oil prices petrol prices could settle around $1.65 a litre next month and around $1.80 from 2nd August even with the phased removal of the fuel tax cuts. This is basically in the range they were in for the two years before the War.
There was mixed news from Australian inflation for May. The good news was that headline inflation fell further to 4%yoy with lower fuel and travel prices. The bad news was that trimmed mean inflation rose both in monthly terms.
In particular, rent and new dwelling inflation accelerated, and food price inflation is high along with services. We are now back to having more CPI items with inflation above 3%yoy than below 2%yoy. Our assessment is that trimmed mean inflation is on track to have increased roughly in line with the RBA’s forecast for 3.8%yoy this quarter.
With the trend remaining up in trimmed mean inflation, second round impacts of the oil supply shock still feeding through and the acceleration in minimum and award wages likely to add to costs and prices, at the same time that May data for jobs and household spending indicate that the economy is still holding up well we remain of the view that the RBA will raise the cash rate again with the next hike in August.
The past week has seen much excitement about the “shock, horror” plunge in auction clearance rates to 47% - with debate as to whether its a crash, a correction or not even that. Clearance rates started to fall last year as the RBA rate cycle went from cuts to hikes at a time when affordability was poor and it’s continued this year as rates rose, buyer confidence fell and then the Budget announced tax hikes on property investors. But so far, the fall has just taken clearances to the low end of their normal range, ie we have been here lots of times before in the last 20 years.
So far it really just looks like a regular cyclical correction in the property market after a strong period. Nothing extreme here. Whether it meets a definition of a correction is semantics as there is no real agreed definition of one for the property market – but it kind of looks like one. But of course, its early days yet and higher rates and the tax changes are likely to impact for a while yet so it will likely still get worse. Since the Budget we have been forecasting a 5% fall in property prices. This would be consistent with property price pull backs since the early 1980s – which have ranged from around 2% top to bottom to just over 8% for the average capital city. Of course, it could be worse as there is uncertainty around how investors will react to the tax changes and how other buyers will react to withdrawal of investors and of course a sharp rise in unemployment could be a major problem. FOMO could give rise to FONGO! Against this though, next year we expect the RBA to start cutting rates again which should start to support the property market.
The latest change of PM in the UK with Keir Starmer resigning and likely to be replaced by Andy Burnham is unlikely to change things much. The UK has been economically and politically unstable since Brexit – with now 7 PMs in 10 years. Labour’s ability to hike tax taxes and spend on new programs is limited by already high tax and spending shares of GDP as its ability to borrow and spend is limited by a high budget deficit (three times that in Australia as a share of GDP) and high public debt (double that of Australia as a share of GDP).
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Australian ETF Review from Bell Potter
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