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

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.

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.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Welcome to Firstlinks Edition 637 with weekend update

What should you do if you think this market is grossly overvalued? While it’s impossible to predict the future, it is possible to prepare, and here are three tips on how to best construct your portfolio for what’s ahead.

  • 13 November 2025

Latest Updates

Investment strategies

Australian stocks will crush housing over the next decade, 2025 edition

Two years ago, I wrote an article suggesting that the odds favoured ASX shares easily outperforming residential property over the next decade. Here’s an update on where things stand today.

Property versus shares - a practical guide for investors

I’ve been comparing property and shares for decades and while both have their place, the differences are stark. When tax, costs, and liquidity are weighed, property looks less compelling than its reputation suggests.

Investment strategies

What if Trump is right?

Trump may be right on two trends: nations are shifting from aspiration to essentials and from global dependence to self-reliance, pushing capital toward security, infrastructure, and energy.

Gold

After a stellar 2025, can gold shine again next year?

Gold has had a remarkable 2025, with the spot price likely to post its strongest return since 1971. This explores the key factors that will shape the outlook for the yellow metal next year, and long-term.

Superannuation

Critics of Commonwealth defined benefit schemes have it wrong

Critics like Clime's John Abernethy have questioned many aspects of defined benefit pensions for public servants. This is an attempted rebuttal, suggesting these pensions aren't the problem they're made out to be.

Infrastructure

Why airport stocks deserve a place in long-term portfolios

Aircraft constraints are holding back global air travel. Those constraints should soon ease which combined with a structural boom in travel demand could be a boon for global airport stocks.

Investment strategies

What is the future of search in the age of AI?

Search is changing fast. AI tools like ChatGPT and Google’s Gemini are reshaping how we find information, opening new opportunities for innovation, user engagement, and future revenue growth.

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.