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Deflation or rising inflation? what is the risk? By Dr. Shane Oliver, Head of Investment Strategy and Chief Economist

Key points: 

Low/falling inflation suggests that right now deflation is maybe more of a risk than rising inflation in developed countries. Falling inflation reflects significant spare capacity globally and soft commodity prices.

Inflation is likely to stop falling next year as global growth picks up, but a significant rise in inflation looks a way off.

This means low interest rates will be with us for quite a while which is a positive for growth assets.  


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Oliver's Insights: Eugene Fama, Robert Shiller, DAA and me

Key points: 

A good starting point when thinking about investment markets is the concept that they are "efficient" as espoused by Eugene Fama.

But as Robert Shiller and others have shown, the efficient market hypothesis often does not apply in reality as shares are more volatile than can be justified and tend to move in mean reverting cycles.

Combining the work of Fama and Shiller suggests that there is a strong case to invest in indexed funds in highly analysed share markets, eg. US shares, but importantly there is also a strong case for dynamic asset allocation.


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Precious Metals Sell-Off Excessive as Markets Yet Again Speculate on Early Fed Tapering - Reports from ETF Securities

Key points

• Fed tapering speculation knocks metals prices down to long-term attractive accumulation levels.
• South Africa power outages and rising European auto sales bullish platinum and palladium prices.
• This week, markets will likely focus on Chinese lead indicators and industrial profits after last week's disappointing PMI numbers. 

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EFT Securities: China bullishness and central bank dovishness support precious metal rally

Key points

• China balanced growth focus, Fed and ECB dovishness supportive of precious metals prices. 
  
• Gold as a hedge against risk 2014 consensus views prove incorrect.
  
• Large platinum and palladium deficits support price outlook.  

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Oliver's Insights - China on track

Key points

• Chinese growth seems to be stabilising around 7.5%.
• Chinese debt levels have risen rapidly, but from a low base and the authorities are trying to slow it down.
• While the Communiqué of the much anticipated 3rd Plenum was vague as usual from such events it is clear China is heading towards more reforms to increase the role of market forces as a means to unleash growth rather than more fiscal and monetary stimulus which runs the risk of being unsustainable.
• Chinese shares remain cheap pointing to the prospect of good medium term returns.

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Oliver's Insights: The search for yield and return – has it gone too far or is there more to go?

Key points

•  Helped in part by a search for yield various asset classes have rallied strongly, but it is doubtful that the rally so far has gone too far. Valuations remain reasonable, credit growth is not excessive and interest rates are likely to remain low for some time. 
• A range of assets continue to provide attractive yields relative to low cash and term deposit rates. 
• There is a case for those who can take on a bit more risk to consider a higher exposure to parts of the share market that have underperformed and yet will benefit as global and Australian growth picks up. 

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