– By Stacy L. Barnes, Superannuation & Investment Manager
In a Nutshell August was an interesting month full of Geopolitical tensions triggering market turbulence with North Koreaâ€™s provocative missile testing countered with Trumps promise of â€˜fire and furyâ€™. The Euro made strong gains, coupled with with positive business surveys and improved credit growth.
From a micro perspective, Australian shares made mild gains in August. There were sharp falls in the Telecommunications sector given competitive pressures and Telstra cuing their dividend. However, this was countered by robust gains for the Resources sector given the strong increases for key commodity prices such as iron ore and copper, resources as a whole making a 5.5% increase over the month, Iron Ore returning to US$79per tonne.
Aussie shares not doing too badly on the world stage:
Australiaâ€™s economic activity has encouragingly improved with solid jobs growth and improved retail spending. The National Australia Bank business survey also indicates strong responses for confidence and conditions, positive news.
Markets have moved to price in three hikes for the RBAâ€™s cash rate by end 2019. Major banks concur broadly with this view; however some economists do not see the same view as that of the bank governor himself who expects growth in Australia to be 3.25% in 2018 and 3.5% in 2019 (above trend of 2.75%). Some of the major banks economists expecting a below trend pace of 2.5% in both years. The four majors (90% of the mortgage market) have been raising investor and interest only mortgage rates while applying tighter lending guidelines, I am seeing this first hand with the SMSF lending, with more hoops to jump.
Housing is an interesting one, despite the steady cash rate housing is actually slowing, factors specifically relating to foreign investors have turned the cycle. High rise building approvals have tumbled by 40% in the last year, particularly due to the investment restrictions in China, lending constraints by banks and sharp increases in state government stamp duties for foreign investors. This downturn is likely to continue for the short term.
Very strong head winds faced by the WA housing market are set to continue with weak population growth, property oversupply and approvals down significantly (23%yr) resulting in a decline in housing values 35 of the last 39 months. It will be a slow boat to China to turn this around, however, the resources sector will have to be the saviour. This being said, the WA economy itself is showing more signs of stabilisation and even a modest recovery, in particular, the state’s labour market presenting a clear resurgence in employment and hours worked, both of which are now growing at or above the national rate and at their fastest pace in 41â„2 years. WA housing may be the ugly duckling now, however if you have the patience of a longer Investment time horizon and you believe in the mining market and migration to the area, might be a nice recovery story.
Random Fun Factsâ€¦Well I think Theyâ€™re funâ€¦
Curious about what people who choose to manage their own super via an SMSF invest in?
SMSF facts as at March 2017:
- the total number of SMSFs is now 590,742
- total members of SMSFs is over 1.1 million
- the total value of estimated SMSF assets is $674.7 billion.
Cash and equivalents still taking a fair slice, even with the low interest rate, trustees venturing out into the direct equities/trust space and an expected sprinkling of direct property both commercial and residential. Based on the notable amount of funds taking advantage of borrowings, Australians are looking to achieve their desired investment strategy outcome of owning property by borrowing with their super and repaying their investment with their Super guarantee & rent received. 9 out of 10 cases I see, borrowing in super doesnâ€™t not affect a clientâ€™s personal cashflows.
The key to any well-balanced portfolio is diversification, weâ€™ve all heard it a million times, and well, it’s true… Back to Market turbulence, Iâ€™ve stumbled across an interesting chart, see below…
Gold, historically, reacts fairly well to geopolitical turbulence and could be considered a relatively useful accompaniment to a balanced or growth portfolio for the mid to long game, to assist in the ease and smoothing of certain volatilities major events may cause. You can note by the chart above that Gold acts inversely with equities in terms of major world events, speaking of the dotcom bubble…
(Other materials Australia supply the world with: China is becoming more and more focused of Electronic and new Gen vehicles putting Lithium & Copper back in the spotlight)
IT Nerd Fund facts:
â€˜Info Tech has outperformed global equities over the long term, more than any other sector (source Bloomberg)â€™
When considering the tech markets, maybe this time itâ€™s not just a boom leading to a bubble like in 2000, maybe we have the tech to keep it stable and sustainable, would you agree:
- Artificial Intelligence (AI): computing power is becoming strong enough to make artificial intelligence a reality. This has the potential to affect almost every part of the economy, from healthcare to manufacturing. This reaches to Industrial manufacturing, Materials handling and logistics, 3D Printing, Consumer products & home automation, security & rescue food & AGI, Healthcare & energyâ€¦ everywhere, right?
- Cyber Security: data breaches are becoming increasingly common
- Internet: E-commerce: continues to take market share from existing brick and mortar companies and benefits from the growth of internet penetration rates in emerging markets.
- Cloud Infrastructure: Companies are increasingly managing IT remotely (i.e., managing and storing information and services over the internet, data warehousing etc).
If you feel Robotics, Gold or other ETFs may be a good diversification tool within your Superannuation or personal portfolio, contact Oncore Wealth Solutions for more information on how they could be obtained and if they might meet your overall investment strategy and risk profile.
SMSFs are always a hot topic and if youâ€™d like to find out more about how they operate and if they might suit your needs, please donâ€™t hesitate to reach out.