Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 434

Welcome to Firstlinks Edition 434 with weekend update

  •   18 November 2021

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

Weekend market update

From AAP Netdesk: Australian share investors recovered some of the week's losses on Friday as the All Ordinaries index closed higher by 17 points, or 0.2%, to 7,730 points. An $8.5 billion takeover offer for Crown and gains for healthcare and commodity stocks were among notable movements. Inflation remained a chief concern in a week in which the index lost 0.6%. UK inflation reached a 10-year high annual rate of 4.2% and in Canada, the reading was 4.5%.
Reserve Bank Governor Philip Lowe this week explained people were buying more goods rather than services during the pandemic, leading to shortages and higher prices. Inflation, which stands at 3% in Australia, would normalise, Mr Lowe said.

In ASX stock movements, Sonic Healthcare gained 3% for a second consecutive day, while market giant CSL improved in the latest session by 1% to $315.50. The big miners were higher. BHP gained 1.1% to $36.45 while Fortescue and Rio Tinto rose by less than 1%. 

From Shane Oliver, AMP Capital: Global share markets were mixed over the last week. US shares rose 0.3% helped by strong data but with gains pared slightly by concerns about rising coronavirus cases in Europe and hawkish Fed comments. Eurozone shares fell 0.3% on the back of coronavirus concerns after Austria announced a lockdown, but Japanese shares rose 0.5% and Chinese shares were flat. Bond yields fell in the US and Europe but rose in Australia. Oil and metal prices fell but iron prices rose slightly but only after making new lows mid-week. The $A fell as the $US rose.

The drumbeat of higher inflation continues, maintaining pressure on central banks with the Bank of England on track to raise rates next month and Fed vice-chair Clarida saying the Fed might have to have a discussion about speeding up the taper, which would clear the way for an earlier rate hike next year. So far, the upwards pressure on long bond yields has been relatively minor, with yield curves tending to flatten reflecting longer term inflation expectations remaining relatively contained and possibly concerns that central banks may make a policy mistake by tightening prematurely. And share markets don’t seem too fussed. Like the Fed and RBA, we are of the view that inflationary pressures should ease as workers return, production catches up and spending rotates back to services. However, this could take 6-12 months with the risk that it feeds further into wage rises and inflation expectations, making the spike in inflation stickier.


Has investing changed? Every week, we face new challenges to our understanding of how investing works. A Bitcoin is worth about US$60,000 (and it lost 18% of its value in eight days to 19 November) but only 10 years ago, a Bitcoin sold for less than US$1 after Satashi Nakamoto published his paper explaining a new payments system:

"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."

The recent IPO of Rivian was another startling example of market mania. A company that has manufactured less than 200 cars with no revenues and $1 billion in costs in the September quarter is now valued at over $200 billion (yes, billion). That's more than Volkswagen which delivers 10 million vehicles a year with €250 billion in revenue. Ford makes over 4 million vehicles a year and is valued at US$77 billion. Rivian's share price has doubled since issue, with famous short-seller Michael Burry (played by Christian Bale in The Big Short movie) calling it:

“More speculation than the 1920s. More overvaluation than the 1990s.”

It was impeccable timing in an Australian context this week, when electric vehicles and utes were front and centre in our news for other reasons. Rivian's major vehicle, the R1T, is not a car but what the Americans call a 'pickup truck', and obviously, it's an impressive one judging by the initial reviews. Wait a minute. It's an electric ute! Surely, no self-respecting tradie would want one, as we were told by Michaelia Cash in April 2019 (now our Attorney-General):

"What I worry about for people like Johnny is that the car he is driving today, if a Labor Government is ever elected, will not be the car he is driving tomorrow. In fact, if you look behind us at all these apprentices here, 50% of those apprentices will be driving an electric vehicle under Bill Shorten. We are going to stand by our tradies and we are going to save their utes, because we understand choice, and that is what Bill Shorten is taking away from our tradies."

And what is wrong with an electric ute? Scott Morrison explained:

"And I'll tell you what ... it's not going to tow your trailer, it's not going to tow your boat, it's not going to get you out to your favourite camping spot with your family. Bill Shorten wants to end the weekend when it comes to his policy on electric vehicles, where you've got Australians who love being out there in their four-wheel drives, he wants to say 'See you later' to the SUV."

The market's enthusiasm for technology is boundless and the reviews suggest an electic ute can handle the needs of our tradies and Rivian has saved our weekends. Meanwhile, we can rely on technology to fix climate change ...

No revenues, who cares? Famous fund manager Stanley Druckenmiller calls current stock prices the biggest bubble of his career:

"... We have crypto craze, we have SPACS, we have booming housing prices, we have these things called NFTs, and equity prices as a percentage of GDP are at an all-time high. And as you also know, inflation is at a 30-year high ... every bust I had ever seen was proceeded by an asset bubble generally set up by too loose policy ..."

And central banks provide whatever liquidity is needed to support the market, including the long-term valuations of tech stocks.

This week we explore whether This Time is Different, and we would love your feedback in two questions. It's our Living Years Survey, where we also ask you to share your investing lessons with a 25-year-old starting out in the market. Thanks to the hundreds of people who have already given their views, which we will publish next week. Many of the forces now driving markets did not exist 10 years ago. As Mike + The Mechanics wrote in The Living Years:

"Every generation blames the one before and all of their frustrations come beating on your door."

Or is this Morgan Housel quotation about a young investor describing the moment he went from cocky and overconfident to broke and unemployed illustrative of what will happen to people who think making money is now easy?

“I sat down at my fancy desk on the edge of my chair waiting for the market to open, ready to have another $50,000 day, and thinking life couldn’t get any better than this. This time, I was right. It didn’t.”

On the theme of market overvaluations, Shane Woldendorp explains why the investment entry price matters, and returns from starting at elevated levels are usually disappointing. Over the past 30 years, when the median stock in the FTSE World Index has traded at a starting P/E ratio above 30 times, investors have never made a positive real return over the following four years.

Joseph V Amato and his fund manager colleagues sat down recently to explore the key themes facing us in 2022, and identified 10 trends to watch. The end of the year is a good time to review portfolios.

A vital advantage of the companies that thrive in challenging conditions is pricing power, as shown by Netflix's ability to regularly raise prices. Diana Wagner identifies the companies and sectors that can retain and grow margins, especially if inflation bites.

What if you have plenty of money in superannuation and you want to take out a lump sum, perhaps to spend on a renovation or help children to buy a home? Meg Heffron looks at the best ways to withdraw a chunk from super.

Australian banks hold dominant positions in many portfolios, managed funds, ETFs and LICs, and they have come through the pandemic strongly. But while Hessel Verbeek and Maria Trinci laud their recovery, they see challenges in the transformation programmes that are supposed to be reducing costs. CBA's biggest-ever price fall last week shows how a favourite can be punished.

We've all seen the dramatic impact of China's regulatory crackdown on stocks such as Tencent, Alibaba and Ping An, but Chi Lo explains the country's motivation and how much it is affecting the private sector generally.

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

Stockmarkets look expensive according to Morningstar analysts, with US and Australian markets both 6% overvalued on average. A screen of the Morningstar coverage universe finds four Australian names trading in undervalued territory writes Lewis Jackson. And Tim Murphy explains what rising inflation means for Australian investors.

This week's White Paper from VGI Partners looks at the rising power of Asia's middle class at an inflection point too important to ignore. Asia is forecast to deliver around two-thirds of global growth over the next two decades.

Many thanks to Harry Chemay for producing two high quality editions in my absence, assisted by Leisa Bell. Our Comment of the Week comes from Harry's excellent paper on the ways our superannuation system needs to change to regain a podium position. Geoff R reiterates many comments that retirement planning is compromised by the threat of regulation changes:

"I really just wish politicians would leave it alone and stop meddling. As others have said it is hard to invest with confidence in Super especially if you are young and multiple decades away from retiring. I have recently retired and super has worked well for me but my grown-up children are not trusting enough to put extra contributions in citing the uncertainty and risk involved in locking away their money for 30-40 years - and frankly I can't blame them. Also they possibly recognise I have perhaps lived "too frugally" (likely an outcome of my parents having lived through the Great Depression) and now find I have saved more than I really need in retirement - maybe I should have "let down my hair" and lived it up a little more!"

Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

Latest updates

PDF version of Firstlinks Newsletter

IAM Capital Markets' Weekly Market Insight

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

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.