Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 408

Welcome to Firstlinks Edition 408 with weekend updates

  •   20 May 2021
  •      
  •   

The Weekend Edition is updated with a market summary and Morningstar adds two of its most popular articles from the week including stock-specific ideas. It's also a chance for a catch up on articles and previous editions are here and contributors are here.

***

From AAP Netdesk: The best performing shares on Friday were in health, consumer staples and technology. The ASX gained 0.15% on Friday and was little better for the week, largely due to declining materials and energy shares.
The ASX200 gained 0.23% for the week after on Wednesday having its greatest loss since February. Investors remain vigilant for signs of inflation due to economies rapidly recovering from the pandemic. Kogan was one of Friday's biggest losers and slumped 14.3% to $8.70. The company warned of lower earnings after wrongly assuming the pandemic sales surge would continue in 2021. Excess stock led to higher warehousing costs.

From Shane Oliver, AMP Capital: Share markets had a bit of a rough ride over the last week with inflation fears continuing to impact along with taper talk in the US and maybe some impact from the fall in crypto currencies forcing speculators in them to sell shares to help cover margin calls on their crypto losses. This left US shares down 0.4% for the week, but Eurozone shares still gained 0.3%, Japanese shares rose 0.8% and Chinese shares gained 0.5%. Bond yields actually fell, and commodity prices were soft with metal and iron ore prices down and oil prices down on reports of progress in US/Iranian talks to return to the nuclear deal and end sanctions on Iran. The $A fell despite a further fall in the $US.

***

There are no better examples of Australia's recovery from the pandemic than the fortunes of our major banks and the changing forecasts of our leading economists. For example, in May 2020, NAB reduced its dividend and undertook a Share Purchase Plan (SPP) at $14.15 to build up its capital:

"... in light of the uncertain economic outlook due to the COVID-19 pandemic. These actions are intended to provide NAB with sufficient capacity to continue supporting our customers through the challenging times ahead, as well as increasing NAB’s capital level to assist with managing through a range of possible scenarios, including a prolonged and severe economic downturn."

If you look back on the last year and feel bad about selling or not buying in March or April 2020 for your own portfolio, then consider where NAB 'sold' (that is, raised capital).


Source: Morningstar Direct

In hindsight, it is easy to be critical and overlook that the outlook was bleak, and no doubt APRA was on the phone, but banking is so good now that NAB is contemplating a share buyback. There is no finance textbook advising companies should issue at $14.15 and buy back at $26 within a year. NAB CEO Ross McEwan was showing a touch of remorse when he said this week:

"At the time I said we wanted to be a very safe bank, that's the positioning I took. If I got it wrong, well I'm happy to be in a very strong position now going forward for customers and shareholders."

Don't worry, Ross, it's unlikely to affect your bonus although you did get it wrong, like many of us. Good to know you're happy after you increased the size of the SPP from its original target of $500 million to $1.25 billion during the offer period.

NAB was far from alone in its dire expectation. Check the changing forecasts of Westpac from May 2020 (when it took a $1.8 billion provision against expected Covid-19 losses) to the latest for March 2021. A year ago, Westpac was expecting a 22% fall in residential property prices over 2020 and 2021 and a 2020 fall in GDP of 5%. Now it sees residential property rising 20% over two years and GDP growth of 4% in 2021.

Thanks to Hugh Dive for these numbers, as Hugh runs a ruler over the latest bank results to check who is doing the best on his well-known bank scorecard.

The banks are also enjoying access to the Term Funding Facility, where the RBA lends to them at 0.1% for three years. An additional $4.4 billion was drawn last week taking total outstandings to $104 billion. However, the banks are so liquid from retail deposits that they have not taken up the $200 billion on offer and only five weeks remain until the end of the TFF on 30 June 2021. Will fixed rate loan rates begin to rise as banks return to bond markets for term debt?

While the 2021/2022 Budget refocused attention on a trillion dollars of debt, Dr Stephen Kennedy, Secretary to the Treasury, gave a speech this week to Australian Business Economists where he showed estimates of the real interest payments on the debt as a % of GDP. Low interest rates are making the Government's spending to stimulate the economy easier to justify, even for a supposedly debt-conscious Coalition Government. At these rates, the debt servicing costs are easy to manage while everyone enjoys the stimulus.

Still on the Budget, Noel Whittaker drills into two of the 1 July 2022 changes to find they are over-hyped versus their practical implications, and he also reveals some of his winning investments and one he has given up on.

Then we look at an emerging investment trend Nick Griffin is following, as consumer demand for a wide range of desirable and expensive products in the luxury sector is driving global company profits.

Rajiv Jain examines the quickest market fall and recovery in recent history in 2020 for six quick lessons on how to invest in a crisis. They're worth remembering as the market will dish out a few more collapses in most of our lifetimes.

Then we uncover a surprising demographic change in Australia. Ashton Reid argues it will go some way to offsetting the fall in immigration many economists have been worried about. First we had domestic holidays compensating for the loss of foreign tourists, now we have thousands of people confident enough in the economy to expand their families.

A couple of weeks ago, we published an article on why the leading tech stocks remain wonderful businesses at reasonable prices, while this week, David Walsh justifies the rotation from tech and communications into value-style industrials. Differences make a market as each article makes a strong case.

And we publish the second half on the risks of buying property off-the-plan with another five potential headaches. It's worth checking the comments from last week where many readers confirmed the shock of fixing defects. Here is an edited version of our Comment of the Week from Robert:

"An excellent article which is spot-on regarding the conflicts of interest and the lack of recourse for remedy. As a retired civil engineer (not previously involved in the building industry) I am dismayed by the state of affairs. Just about every apartment structure and new house construction I have inspected (often for family and friends) has had significant issues - water leaks involving balconies, or windows, roof designs unlikely to handle downpours, plumbing issues including leaks from shower areas, unknown party wall construction which results in the crying baby next door appearing to be in your bedroom etc. Why as a society we accept this state of affairs I cannot fathom."

Thanks also to Scott Whiddett of Pitcher Partners for his comprehensive response to a reader comment on last week's dividends and franking for LICs. It's a complex subject and there's far more to the LIC claim about sustainability of dividends due to transfers to a profit reserve.

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

Lex Hall examines the Morningstar Dividend Yield Index, a cross-section of the Australian economy featuring wide and narrow moat names. Meanwhile, Lewis Jackson says investors will soon have to pick a side in the inflation debate - dove or hawk?

This week's White Paper from BetaShares shows the latest research with Investment Trends on who is using ETFs and why. As ETFs rush to $110 billion on issue, there are no signs of demand easing.

 

Graham Hand, Managing Editor

 

Latest updates

PDF version of Firstlinks Newsletter

Australian ETF Review from BetaShares

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

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

Latest LIC Quarterly Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

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.