Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 368

Welcome to Firstlinks Edition 368

  •   29 July 2020
  •      
  •   

Weekend market update: the S&P/ASX200 fell heavily on Friday to drive a 1.6% loss for the week due mainly to worries about the virus impact in Victoria. The US S&P500 was far stronger, up another 0.8% on Friday with NASDAQ leading the way, up 1.5%. The market quickly shrugged off the huge fall in US June quarter GDP, down 9.5% quarter on quarter. Many parts of the world are experiencing rising virus cases again, and European stocks fell 3.6% with Japan down 4.6% over the week. 

***

Differences of opinion create a market. Technology stock buyers have been the big winners recently but there are plenty of sellers as it's not difficult to make a compelling argument for and against the sector.

The doubters say speculative money flowing into tech has pushed values well beyond fundamentals, with the NASDAQ tech index up about 17% this year and 21% per annum over three years. The S&P500 is down 1% this year and up 9% per annum over three years. We have never seen NASDAQ dominate trading volumes versus the New York Stock Exchange as much as now.

In many presentations over recent years, I have said that every portfolio can justify an investment in the leading technology stocks. I remember when BetaShares launched its NASDAQ100 ETF (ASX:NDQ) in May 2015 at $10, it was an ideal vehicle for Australian investors to gain easy and inexpensive access to the best US companies. It now trades at $24.80. However, just three stocks - Apple, Amazon and Microsoft - now comprise over one-third of the NASDAQ index. As they are worth more than the GDP of Germany, the case is not as strong as before with much future success built in. The threat of regulation over their near-monopoly positions is greater than ever.

The main case for tech at these levels is that the future growth which would have taken years without COVID-19 has been compressed. Indeed, as shown below, e-commerce has achieved 10 years of growth in only three months, so future value has been brought forward into the current prices which makes them easier to justify.

As Arvind Krishna, CEO of IBM said recently:

“The trend we see in the market is clear. Clients want to modernise apps, move more workloads to the cloud and automate IT tasks. They want to infuse AI into their workflows and secure their IT infrastructure to fend off growing cybersecurity threats. As a result, we are seeing an increased opportunity of large transformational projects.”

On the other side, an equally salient argument is made this week by Roger Montgomery, who has seen plenty of booms and busts in his three decades of investing. This is one party he doesn't even want to attend, never mind leaving early before the champagne runs out.

Then in an interview with Gofran Chowdhury, he describes how his clients have changed their investment patterns in recent months, with caution that the full impact of COVID-19 is yet to hit.

Sean Fenton and James Delaney see major company beneficiaries from the pandemic, and their process allows them to go long the expected winners relative to the expected losers. Low interest rates also benefit growth stocks.

There's a popular view that the generations are 'at war', many against the Baby Boomers, with the pandemic creating new tensions. Emma Davidson investigates whether we have more to connect us than separate us.

Rarely has gold generated so many headlines as it touches US$2,000 amid rising global geoplitical and economic risks. Jordan Eliseo asks whether we should consider gold as a growth or defensive asset in a diverse portfolio.

Large superannuation funds are predominantly active share investors, priding themselves on their investment prowess over passive alternatives. Donald Hellyer dives into the numbers to see if the confidence is warranted.

COVID-19 has wreaked havoc on many sectors but greenhouse gas emissions have fallen. Lise Moret says society has an opportunity to build on improvements and create a greener future.

These are difficult times to build the bond part of a portfolio, especially when the Australian Government yesterday issued $15 billion (with demand for $37 billion) of 30-year bonds at a yield of only 1.94%. The 10-year rate is about 0.8%. It's all part of funding the large budget deficits, an unavoidable necessity to support the economy, and at least it is being done at low rates. The Port of Brisbane recently launched a deal with $2.75 billion of bids for a $500 million issue. There's a lot of cash chasing low rate, high quality bonds, and with headline inflation negative in the June quarter, investors know rates are not rising anytime soon.

To assist in portfolio construction in these tough conditions, this week's White Paper from Vanguard is its latest Asset Allocation Report, showing investors are incorporating caution into their outlooks.

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

Latest ETF Quarterly Report from Vanguard

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

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

Plus updates and announcements on the Sponsor Noticeboard on our website

 

  •   29 July 2020
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

Property

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Investment strategies

Dumb money triumphant

One sign of today's speculative market froth is that retail investors are winning, and winning big. It bears remarkable similarities to 1929 and 1999, and this story may not have a happy ending either.

Retirement

Can the sequence of investment returns ruin retirement?

Retirement outcomes aren’t just about average returns. The sequence of returns, good or bad, can dramatically shape how long super lasts. Understanding sequencing risk is key to managing longevity risk.

Strategy

How AI is changing search and what it means for Google

The use of generative AI in search is on the rise and has profound implications for search engines like Google, as well as for companies that rely on clicks to make sales.

Survey: Getting to know you, and your thoughts on Firstlinks

We’d love to get to know more about our readers, hear your thoughts on Firstlinks and see how we can make it better for you. Please complete this short survey, and have your say.

Investment strategies

A framework for understanding the AI investment boom

Technological leaps - from air travel to computing - has enriched society but squeezed margins. As AI accelerates, investors must separate progress from profitability to avoid repeating past mistakes.

Economy

The mystery behind modern spending choices

Today’s consumers are walking contradictions - craving simplicity in an age of abundance, privacy in a public world. These tensions tell a bigger story about what people truly value and why.

Sponsors

Alliances

© 2025 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.