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

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

After 30 years of investing, I prefer to skip this party

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.

Australian house prices: Part 2, the bigger picture

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.

How to handle the riskiest company results in history

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.

Australian house prices: Part 1, how worried should we be?

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.

Welcome to Firstlinks Edition 367

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.

  • 22 July 2020

Welcome to Firstlinks Edition 369

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%?

  • 6 August 2020

Latest Updates

Shares

How to handle the riskiest company results in history

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.

Shares

The rise of Afterpay and emergence of a new business model

Sometimes the simplest ideas are the best. The founders of Afterpay stumbled on the attraction for consumers of paying by instalments, and now retailers must offer the facility or lose business.

Property

WFH and its impact on Australian offices and tenants

Although most office workers are currently WFH, an energy and a buzz comes from working in the same physical space. Other benefits include team building, relationships, talent mentoring and creative collaboration.

Fixed interest

Why 2020 has been the year of the bond market

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.

Investment strategies

Is 5G all hype or real investable opportunity?

While its impact will take time to unfold, 5G will meaningfully change the world. Once adoption takes hold, there is huge potential for its application across a wide range of industries.

Property

Australian house prices: Part 1, how worried should we be?

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.

Property

Australian house prices: Part 2, the bigger picture

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.

Sponsors

Alliances

© 2020 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.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. 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.