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Wednesday, 12 August 2020
Recently trending After 30 years of investing, I prefer to skip this partyAustralian house prices: Part 2, the bigger picture How to handle the riskiest company results in historyAustralian house prices: Part 1, how worried should we be?Welcome to Firstlinks Edition 367
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Going back to June 2019, investors would have questioned the logic of diversifying away from outperforming growth assets. But when markets feel at their best, it is paramount to keep a perspective on long-term goals.
Citi's clients tap into their own views to find investments that suit their portfolios, often working across global boundaries. It's a search for solutions in a world with no risk-free returns.
Falling dividends and the uncertain outlook deliver challenges for income generation, but a dual approach of short-term income and long-term sustainability should ensure a portfolio continues to perform.
Do you think investors can only lose heavily on bonds if the credit defaults? When bondholders accept 0.88% for 100 years, there is great potential for serious pain somewhere along the journey.
There are heavy clouds on the horizon in the near and medium term, yet risk markets have separated themselves from the economics. Liquidity will not solve the problems of bankrupt companies.
Investors hold non-government bonds for both their income and defensive characteristics, but there must be sufficient diversification and liquidity in quality names to manage the risk.
Market uncertainty, low interest rates and the threat from COVID-19 to global economies have boosted the performance of high quality fixed income assets. Lesser corporates face another story.
For investors able to react quickly when stressed selling hits hybrids, excellent margins are available on quality names. The GFC taught experienced investors lessons that are now repeating.
Some investors are questioning the role of bonds with such low rates, but they remain an important part of a diversified portfolio for several reasons. Don't give up on them yet.
The market is asking how much are you willing to pay to feel safe, and the answer is: a lot. Perhaps a better question to ask is: how much are you risking in your quest to feel comfortable?
Global indexes are undergoing a fundamental shift, forcing investors to revise their allocations. There has never been a change of this size, coinciding with China's rise as an economic power.
Bonds markets have continued to defy the notion that low yields imply low returns, and most investors need the solid foundation that bonds give to a portfolio.
Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.
There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.
It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.
Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.
There is a similarity between the current health crisis and economic crises of the past. For COVID-19, record amounts of biotech funding from government agencies and private companies are looking for a vaccine. Likewise, central banks once struggled treating recessions but the 'vaccine' now is record amounts of financial stimulus to ensure liquidity. While the world awaits a COVID treatment, markets are purring along, at least until side effects hit.
Imagine you had perfect foresight about COVID-19 at the start of the year. You correctly foresaw that the global pandemic would kill over 700,000 among 20 million infections by August. In Australia, borders would close, cities would be locked down, most mortgagors would be on income support and companies would be allowed to trade while insolvent. You then had to guess how much the stock market would fall. Would you say about 10%?