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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Gold Continues to Shine in the Aftermath of the US Government Shutdown report by ETF Securities

Precious Metals Weekly by ETF Securities

Highlights:

• Gold and silver prices rally on the weak US data and dollar
• Gold is shining in the US government shutdown post mortem
• platinum and palladium remain attractive as global economic prospects improve

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How much longer can the share market rise? report by ANZ Global Wealth Chief Investment Office

How much longer can the share market rise?

While a historical comparison of US share market bull phases suggests this current cycle is a bit 'long in the tooth', the same cannot be said for most other markets. We expect equities to outperform bonds and cash in the year ahead with market leadership to change to relatively undervalue non-US markets, providing another leg of gains.

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Fidelity Insights - Why the Fed's QE is likely to end well?

by Michael Collins, Investment Commentator at Fidelity

September 2013

Stan Druckenmiller, a star US hedge-fund manager, slams the Federal Reserve for “running the most inappropriate monetary policy in history”.¹ But what seems to scare investors more is the prospect that the Fed’s quantitative easing will end soon.

Financial markets wobbled after Fed Chairman Ben Bernanke on May 22 said the Fed could wind down the unorthodox monetary tool, whereby a central bank, having already slashed its cash rate to close to zero, conjures liabilities on its balance sheet to buy financial assets. The aim of the policy is to lower long-term interest rates to encourage consumers to spend and businesses to invest.

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Fidelity Insights - Will China's leaders hold steady on economic reform?

by Michael Collins, Investment Commentator at Fidelity

September 2013

China’s Finance Minister Lou Jiwei enjoys the same privilege with China’s media as Australian politicians do with Hansard – if you misspeak you can adjust the official record.

Lou’s error was to imply in July at a media briefing in Washington that China’s economic growth for 2013 could fall below the government’s target of 7.5%, for it fuelled concerns about the challenges facing China’s economy. “We don't think 6.5% or 7% will be a big problem,” he told reporters, a level that would mark China’s slowest growth since 1990.¹ 

To placate concerns that China’s government might fall short of a growth target for the first time since 1998, the government-run Xinhua News Agency quickly corrected its English-language story containing Lou’s remark to say, “There’s no doubt that China can achieve this year’s growth target”.² 

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EFT Securities: US Jobs Disappoint, Precious Metals Eye FOMC

Key points

• China physical demand continues unabated.
  
• Modest tapering likely to be precious metals supportive.
  
• Palladium price falls despite strongest US auto sales since 2007.

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Australia after the Resource Boom By David Hale of David Hale Global Economics September 2013

KEY CONCLUSIONS

• Australia is in the process of transitioning growth leadership from the mining sector to the other sectors of the economy
• The continued depreciation of a still-expensive Australian dollar will facilitate the transition process
• The expected decline in capital goods imports and increase in natural gas exports should help Australia produce large trade surpluses later this decade
• While the major Australian political parties have similar macroeconomic policy agendas, there are major differences in the parties’ microeconomic agendas
• The Liberal Party plans to repeal the carbon tax and the Mineral Resource Rent Tax when it comes to power
• Australia will assume leadership of the G-20 group at the end of this year
• How the Australian stock market performs in the coming years will depend just as much on how international growth evolves as it does on domestic factors

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Shane Oliver, Head of Investment Strategy & Chief Economist view on Australia’s new Government

Key points

• The policies of the new Government if implemented are likely to lead to smaller government, less regulation and over time improved productivity and economic growth. 
• Expect a mini-budget around November that may contain more aggressive budget savings.
• The historical experience combined with the more business friendly approach of the Coalition suggests a positive share market response over time. 
• The key uncertainty relates to the new Senate.

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UBS Global Perspectives

Overview

• Equities: Given US equity’s overvaluation and the uncertainty over the impact of the QE tapering, we continue to prefer equities that are significantly undervalued and have stronger potential for upside surprise, such as UK, German and Japanese equities.
• Fixed Income: We maintain a modest overweight to high yield. Additionally, in preparation to defend against rising rates, we have begun shorting depressed yield curves (e.g., US) and replacing with exposure to healthier yield curves (e.g., Australia).
• Currency: We continue to find some commodity currencies, such as the Australian, New Zealand and Canadian dollars, to be overvalued. Our largest overweight position remains the US dollar, which has benefited from stronger growth, as well as being a safe haven during recent volatility. From a valuation perspective, the USD also appears very attractive as it is trading at historically low relative levels despite recent strengthening, making it an advantageous way to access US economic strength.

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Franklin Templeton Investments: Global Economic Perspective

Perspectives from the Franklin Templeton Fixed Income Group

• DEALING WITH TALK OF FED TAPERING
• GLOBAL MARKETS: RETURN TO REALITY
• EUROPEAN OUTLOOK

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S & P DOW JONES INDICES: Australian Bond Prices Tumble Post-RBA Rate Decision

Highlights:

• The S&P/ASX Australian Fixed Interest Index dropped 0.37% in August after the RBA rate decision.
• The S&P/ASX Government Bond Index led losses, falling 0.67%.
• Within the S&P/ASX Australian Fixed Interest Index, the longer ends of Australian bonds underperformed the market, with 10-year+ bonds dropping 1.18%.
  
  
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Australian profits, the economy and shares by Shane Oliver, Head of Investment Strategy & Chief Economist

Key points

• June half profit reports were poor consistent with sluggish June quarter GDP growth of 0.6% or 2.6% year on year. 
• On a 12 month horizon however, a reduced cost base, low interest rates and a lower $A point to stronger economic growth and profits.
• The share market has moved up ahead of profits and while gains are likely to slow, they are likely to remain decent on a 12 month view as profits start to improve.

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S&P/ASX 200 Earnings Report September Edition

Key Highlights

• 133 companies in the S&P/ASX 200 have reported annual earnings thus far for FY 2013. 35% have reported earnings better than street expectations, polled by S&P Capital IQ analysts. Collectively, the S&P/ASX 200 has reported a -0.3% EPS surprise. 
• Last year, 40% of all companies in the S&P/ASX200 had beaten earnings street expectations.
• Of those companies who have announced earnings, 31% have shown double digit or better Y/Y growth.
• Companies still remaining to report with the largest expected earnings growth for FY 2013 include Bank of Queensland Ltd. (ASX:BOQ) +871.6%, Aurora Oil & Gas Ltd. (ASX:AUT) +124.9%, and Regis Resources Limited (ASX:RRL) +106.9%.
• Companies still remaining to report with the most upward revisions for FY 2013 in the past month include Oil Search Limited (ASX:OSH) 13 upward revisions, Alacer Gold Corp. (ASX:AQG) 10 upward revisions, and Bank of Queensland Ltd. (ASX:BOQ) 9 upward revisions.
• Companies still remaining to report with the largest FY 2013 EPS% change in the past month include Mineral Deposits Ltd (ASX:MDL) +273.2%, Macquarie Atlas Roads Group (ASX:MQA) +84.4%, and Aquila Resources Limited (ASX:AQA)+80.1%.
• Companies with the greatest potential upside based on S&P Capital IQ consensus target price include Discovery Metals Ltd. (ASX:DOL) +501.6%, Sundance Resources Limited (ASX:SDL) +271.8% and Linc Energy Ltd (ASX:LNC) +122.2%, (*data as of 8/30/13).
• 2 companies are expected to report annual earnings in August including:
• Nufarm Limited (ASX:NUF) with an S&P Capital IQ EPS consensus estimate of, $0.29
• Discovery Metals Ltd. (ASX:DML) with an S&P Capital IQ EPS consensus estimate of, $0.02
• On August 23rd, 2013, Crown Limited (ASX:CWN) reported annual earnings of $0.65, slightly above of the S&P Capital IQ consensus estimate of $0.62. The hotel and gaming operator grew earnings by over 16% versus last year. Better than expected cost control helped drive the beat. Revenues of $2.89 billion came up shy of consensus, but still managed to grow over 3% from a year ago. Crown Perth did particularly well with gaming revenues increasing +8% and non-gaming revenues increasing +18% for the second half of the year. The company noted that new restaurants and refurbishments have increased significant traffic to the property. Management did not provide any guidance for the upcoming fiscal year, but did mention there was softness in consumer sentiment for Melbourne. Following the earnings announcement, shares of the stock soared over 5%, reaching a 52-week high.

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What’s the outlook for Australia’s housing market? MLC Investment Management

In this Investment Insight, Michael Karagianis, Senior Investment Strategist at MLC Investment Management, explains:

•	how a resilient housing market helped Australia through the GFC
•	what has supported house prices here, and whether this can continue
•	what high prices and high household debt mean for the housing market’s outlook, and
•	why diversifying beyond residential property is important for investors. Please click here to read the report

ETF Securities report - Physical Gold Shortage Drives Gold Price Higher

Summary

London Bullion Market Association (LBMA) gold forward offered rates (GOFO) rates have now been negative for over 7 weeks. While GOFO rates have been negative during a few exceptional periods in the past, this is the first time they have been negative for a prolonged period, indicating tightness in the physical market for gold traded on the LBMA. Strong demand from Asia and developing countries' central banks, coupled with reduced supply from gold recycling and diminished mining supply, appear to have substantially tightened the market.

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ETF Securities report - Middle East Tensions Boost Precious Metals

Key points

• Gold and silver rise but platinum and palladium suffer.
  
• Looming US debt ceiling debate adds to seasonal support for gold.
  
• Improving outlook for the PGMs, among the few commodities in deficit.

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Oliver's Insights: The rout in emerging markets – is it another Asian crisis?

The rout in emerging market currencies and assets is indicative of a turn in the long-term secular cycle away from them. While an Asian crisis re-run is unlikely, the rout could have further to go and the risks have risen. Countries with current account deficits such as Brazil, India and Indonesia are particularly vulnerable. Surplus countries like Korea and China are better placed.For investors this means being cautious regarding emerging market assets for now. It also adds to the vulnerability of the $A.
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ETF Securities: Have Gold and Silver Prices Already Discounted Fed Tapering?

Key points

• Gold and silver rise despite spike in US bond yields and stronger dollar.
• September - the best month for gold.
• Another record demand indicator - silver ETF holdings reach a new high.
• Increasing global GDP improves underlying support for PGMs.

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ETF Securities: Silver Surges 12% as US Stocks Stumble

Key points

• Positive precious metal sentiment shifts up a gear.
  
• Gold better priced than equities for Fed tapering?
  
• PM's rally despite India tightening restrictions.
  
• Gold futures in backwardation for longest period on record - highlighting strength of physical demand.
  
• PGM outlook improves, with platinum holding above US$1,500/oz.  

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Oliver's Insights: Australian housing – economic saviour or just another bubble?

Australian house prices have turned up at a time when they are still overvalued. However, there is no sign of a new property bubble.

The cyclical bounce in house prices likely has more to go, but the broad trend is likely to stay flat in real terms.

There are tentative signs of an acceleration in dwelling construction activity, which should help rebalance Australian economic growth over the year ahead.


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National Australia Bank Quarterly Australian Commercial Property Survey: Q2 2013

Sentiment in the commercial property market weakened notably in Q2 2013. The recent softening in economic conditions (and more subdued outlook for GDP growth) seem to have weighed most heavily in office and industrial markets, with retail unchanged (but very weak) and improving for CBD hotels. Sentiment fell most in Victoria (now the weakest state after SA/NT). WA is the only state where sentiment was positive (but also lower). Expectations for capital and rental growth softened in all markets. Fewer developers planning to start new projects in the near-term, with capital sourcing intentions also suggesting developers are uncertain about the future operating environment. Consumer confidence still the main challenge facing property businesses, but concerns about government regulation and financial economic/volatility have also risen.

• NAB Commercial Property Index fell to -16 points in Q2 (below long-term series average of -6 points). Overall index weighed down by notable fall in office and industrial. With weaker domestic economic conditions, the outlook for capital and income growth more measured in all markets. As a result, NAB Commercial Property Index now expected to rise more sedately to just +13 points by Q2’14 and +30 points in Q2’15 (well below outcomes reported in the last survey).
• Sentiment fell heavily in Victoria in Q2 but SA/NT the most downbeat state. WA the only state reporting positive sentiment (but lower). Sentiment improved in Queensland and NSW but negative state index readings suggest these markets are also sluggish. Market sentiment to remain negative in SA/NT and Victoria in the next year. NSW the strongest market in the next 2 years, with Victoria overtaking WA as the next best. 
• Capital values fell most for retail (-1.5%) in Q2, with values also down for industrial (-0.7%) and office (-0.5%) but up 0.3% for CBD hotels. CBD hotels to lead capital growth but pared back to 1.5% and 2.7% in the next 1-2 years. Property professionals also expect lower capital growth in both the office (0.9% and 2.5%) and industrial (0.5% and 1.6%) in the next 1-2 years. Average capital values for retail property tipped to fall -0.6% in next year and rise 0.3% in the next 2 years.
• Property professionals estimate gross rents fell in all markets in Q2 (at a faster rate than Q1). Rents fell most in retail (-2%). In the office and industrial markets, rents fell -1.2% and -0.9% respectively. Expectations for rental growth lowered in all markets. Office and retail rents now expected to fall -0.1% and -1.3% respectively in the next year, with industrial rents up a more modest 0.3%. In the next 2 years, rents expected to rise 1.2% in office, 1.1% in industrial and fall -0.3% in retail.
• Supply conditions in national office market softened in Q2, with the market now “somewhat over-supplied”. National retail market also “somewhat over-supplied”, but industrial and CBD hotel markets “neutral”. Vacancy rates fell slightly in industrial and retail markets in Q2 but increased in office. Vacancy rates forecast to rise in office and retail markets in the near-term.
• Fewer developers are planning to start new projects in the near-term, with the majority still seeking to develop residential projects although prospects improved most among retail developers. Debt and equity funding is still a problem for property developers, but conditions have been improving since late-2012. Developers’ capital sourcing intentions suggest growing uncertainty over the future operating environment. Consumer confidence remains the biggest challenge facing property businesses in the next 12 months, but concerns over government regulation and financial economic/volatility also higher.

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How long can Draghi’s bond-buying bluff hold? by Michael Collins, Investment Commentator at Fidelity

Capitalist banking systems are built on the confidence trick that people can get their money back at any time. Of course, if everyone sought their money at once, no one would get anything because the financial system would collapse.

The eurozone is being held together by a more-fragile bluff. This is the European Central Bank’s “outright monetary transactions” scheme that was announced in September last year. The scheme pledges to buy unlimited amounts of bonds of distressed sovereigns,¹ a plan that was enacted by Mario Draghi to back up his comments two months earlier that the ECB would “do whatever it takes” to save the euro.

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Silver Shines on Optimistic Sentiment Shift - ETF Securities report

Key points

• Precious metals increasingly pricing in potential for tapering of Fed bond buying.
  
• US physical coin demand hits record level.
  
• Platinum Group Metal (PGM) markets remain tight.

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PGMs Update - Platinum: In Need Of A Catalyst

Summary

PGMs have begun the third quarter on a positive note, paring some of the losses sustained in the April precious metal slump. Despite having reached a two-year high vs the gold price, platinum is currently trading at an eleven-year low compared to the palladium price. While supply-side dynamics are price-supportive for both platinum and palladium, in the near term demand drivers are likely to favour palladium, which is more exposed to the strong growth of the US and Chinese auto sectors. 

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The Australian election and investors By Dr. Shane Oliver, Head of Investment Strategy and Chief Economist

Historically election campaigns result in a period of flatlining for the Australian share market, followed by a bounce once the election is out of the way.

The likely end to three years of minority Government should be taken favourably by markets as it will likely result in more certain policy making.



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The world turns – from emerging to developing markets by Shane Oliver, Head of Investment Strategy & Chief Economist

Key Points

• The world is turning. While the US, Japan and Europe are starting to look brighter the emerging world led by China, India, Brazil & Russia is looking a bit less bright.
• This is seeing the long term secular cycle in investment markets move in favour of traditional global shares relative to emerging markets and Australian shares, and will work against commodities and currencies like the $A.

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Upside potential for silver as fundamental and technical indicators align, Weekly Report from ETF Securities Research

Key points

• Technical indicators signal potential upside for silver.
  
• Gold supply constraints could provide support despite unfavourable macro environment.
  
• Weak South African Rand helps to constrain platinum price gains.

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Silver Shines as Gold:Silver Ratio at 3-Yr High Attracts Investors - Precious Metals Weekly report by ETF Securities

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Australian Gold Equities - Sifting through the ashes by Macquarie Research

Event

• Following a torrid three and half months which has seen the gold price fall from US$1,600/oz on 1 April to its current level of US$1,320/oz (having reached as low as US$1,180/oz on 28 June 2013), gold equities have suffered significant falls.
• While we believe that the commodity has potentially found a floor, we are focussed on the balance sheets for the gold equities as they come to terms with the new operating conditions.
• Forward curve update (See Fig 2.) We have updated our commodity forward price curves upon which we base our valuations. Since our last update (25 April) the Long Term forward gold price has decreased ~6%. Our target prices continue to be based on our net asset values derived utilising the prevailing forward curve prices. On average, the impact of the lower forward curve is a 20% decrease in our target prices (range of 0% to -60%).

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August Issue of S&P/ASX 200 Earnings Report

Key Highlights this month:

·         10 companies in the S&P/ASX 200 have reported earnings thus far for FY 2013. 50% have reported earnings better than street expectations, polled by Capital IQ analysts.  Collectively, the S&P/ASX 200 has reported a 1.3% EPS surprise.

·         Last year, 40% of all companies in the S&P/ASX200 had beaten earnings street expectations.

·         Of those companies who have announced earnings, only one has shown double digit or better Y/Y growth.

·         Companies still remaining to report with the largest expected earnings growth for FY 2013 include, Independence Group NL (ASX:IGO) +862.4%, Bank of Queensland Ltd. (ASX:BOQ) +856.2%, and Senex Energy Limited (ASX:SXY) +275.3%. 

·        Companies still remaining to report with the most upward revisions for FY 2013 in the past month include Flight Centre Ltd. (ASX:FLT) 14 upward revisions, Oil Search Limited(ASX:OSH) 10 upward revisions, and Fortescue Metals Group Limited (ASX:FMG) 10 upward revisions. 

·         Companies still remaining to report with the largest FY 2013 EPS% change in the past month include Alacer Gold Corp. (ASX:AQG) +101.0%, Magellan Financial Group (ASX:MFG) +40.8% and Silver Lake Resources Limited (ASX:SLR) +27.4%.     

·         Companies with the greatest potential upside based on S&P Capital IQ consensus target price include, Discovery Metals Ltd. (ASX:DM) +262.5%, Sundance Resources Limited (ASX:SDL) +258.0%,  and Mineral Deposits Ltd (ASX:MDL)+132.6% (*data as of 7/30/13).

·         128 companies are expected to report annual earnings in August.

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Investment outlook after a strong financial year By Dr. Shane Oliver, Head of Investment Strategy and Chief Economist

The past financial year saw returns of over 20% from Australian and global shares, providing very strong returns from balanced and growth oriented investment strategies.

While returns are likely to slow over the year ahead, they are likely to remain solid as share valuations are still reasonable, the global economy continues to grow, the Australian growth outlook improves into next year and monetary conditions remain easy.

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Gold Price Rallies Most Since 2011 as Investors Reassess US Interest Rate Outlook

ETFS Precious Metals Weekly

Key points

• Backwardation in gold market indicates continued shortages.
  
• Silver is the wild card this week. Silver was the only precious metal to decline last week, losing 1.2% to $19.4oz.
  
• Platinum and palladium continue to outshine gold. Palladium continued to be the best performing precious metal, gaining for the second consecutive week.

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National Australia Bank Quarterly Australian Residential Property Survey: Q2 2013

Housing market sentiment weakened in all states in the June quarter as prices took a backward step and rents slowed. Capital and rental expectations were also more measured, with confidence seemingly undermined by softer economic growth and downside risks posed by the economy’s structural adjustment. WA is the most optimistic state for prices in the next year, followed by Victoria and NSW. Resident owner occupiers more active in the established market, while new developments attract more investors. Foreign buyer activity remains elevated at around 13% of total demand, up from 5-6% in much of 2011.

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S&P DOW JONES INDICES | PERSISTENCE SCORECARD

Market participants often look at past performance and related analytics when selecting funds. But how much does past performance really matter?

The Persistence Scorecard, produced twice a year, aims to answer this question by tracking the consistency of top performers over consecutive annual periods. The latest scorecard again revealed that very few funds can consistently be top performers.  For the three years ended March 2013, just 16.57% of large-cap funds, 14.22% of mid-cap funds and 23.05% of small-cap funds maintained a top-half ranking over three consecutive 12-month periods

Please click here to learn how funds performed in short- and long- term horizonz

Precious Metal Prices Surge on Dovish Fed Comments, Strong China Data - ETF Securities Research

Key points

• Gold and silver price rebound accelerates as Fed highlights dovish position.
  
• Platinum and palladium prices back in focus on South African strikes.
  
• Gold Forward Offered Rates (GOFO) rates turn negative for the first time since the Lehman crisis.

Please click here to read the research report

China acts against excessive lending by Michael Collins, Investment Commentator at Fidelity

China’s new rulers, by initiating the tightest credit squeeze in more than a decade, have signalled to banks and other financial players that they need to improve their lending practices and better safeguard their assets. The decision by China’s central bank to ignore a jump in the cash rate that was sparked by rumours that a small bank was in trouble has consequences for the country’s economic growth.

On June 20, China’s three-month-old government failed to inject enough liquidity into the money market and
short-term borrowing costs climbed. The one-day repurchase rate, one barometer of interbank lending, spiked to a record 12.9%, compared with an average of 2.51% in the first five months of the year. (The more-alarmist reports led with the interbank-lending or cash rate reaching 30% on June 20.). Analysts surmised that the inaction was a warning to banks to rein in the explosion of lending and investment that Beijing kicked off in 2009 to protect China’s economy from the global financial crisis.


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The new threat to the US economy by Michael Collins, Investment Commentator at Fidelity

As effortlessly as magic, the US economic recovery is helping shrink Washington’s budget deficit as more taxes and income roll in and fewer welfare payments are sent out. The Congressional Budget Office predicts the US federal deficit will narrow to about 4% of GDP this year and dwindle to 2.1% of output by 2015 – less than a quarter of the post-crisis high of 8.5% of GDP in 2010.

Improved government finances are just one of the benefits of a stronger US economy, which expanded at an annual rate of 2.5% in the first quarter. A US recovery that is robust enough to survive the withdrawal of stimulus tied to tax increases in January and the sequester in March has helped the Dow Jones Industrial Average breach 15,000 for the first time. It has bolstered consumer confidence to a five-year high, reduced the jobless rate to 7.5% from a post-crisis high of 10.1% and is driving a housing revival.


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The spectre of inflation by Michael Collins, Investment Commentator at Fidelity

The Federal Reserve judges that inflation is low enough for it to prolong its third splash of quantitative easing. In Japan, deflation is so entrenched policymakers are opting for radical stimulus to get any inflation. The eurozone is tumbling into a Japan-like deflationary spiral. China has tamed inflation for now. The Reserve Bank of Australia has cut the cash rate to a record low to reverse disinflationary forces. Commodity prices are dropping, even gold. Global bond yields hover at record lows. The narrowing of bond yields over inflation-linked yields shows inflation expectations are falling. Yet, for some reason, warnings about out-of-control inflation persist.

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Why The Commodity Super-cycle is Far From Dead - Nitesh Shah, Associate Director – Research & Nicholas Brooks, Head of Research, ETF Securities

Key points:

• The commodity super-cycle that started in the late 1990s is far from over.
• The combination of substantially higher absolute levels of demand and the increasing scarcity and rising cost of commodity production will force prices higher over the next 10 to 20 years.
• The industrialisation, urbanisation and rising wealth of large population emerging market countries will continue to drive demand higher.
• Although much attention has focused on the likely reduction in the economic growth rates of China and India over the next 20 years, per capita incomes are expected to triple over the coming 20 years, driving substantial increases in per capita and absolute levels of consumption of a wide range of commodities.
• The long-term supply of most commodities will remain constrained due to their increasing scarcity and rising costs of production.
• Higher prices will encourage the more efficient use of the world’s scarce resources and incentivise the investment and innovation necessary to boost supply productivity.

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China and Central Banks Step Up Gold Buying as Price Falls - eft Securities

Key points

• China's gold imports from Hong Kong increased 40% in May from a month earlier, as bargain hunters increased purchases.
  
• Central banks buy 24 tonnes of gold in April and May.
  
• Platinum and palladium prices may rise on growing South Africa labor issues.

Please click here to read the report

S&P/ASX 200 Earnings Report July Edition

Key Highlights

• 8 companies in the S&P/ASX 200 have reported annual earnings thus far for FY 2013. 50% have reported earnings better than street expectations, polled by Capital IQ analysts. Collectively, the S&P/ASX 200 has reported a 1.9% EPS surprise.
• Last year, 40% of all companies in the S&P/ASX200 had beaten earnings street expectations.
• Of those companies who have announced earnings, only one has shown double digit or better Y/Y growth.
• Companies still remaining to report with the largest expected earnings growth for FY 2013 include, Independence Group NL (ASX:IGO) +913.5%, Bank of Queensland Ltd. (ASX:BOQ) +856.3%, and Senex Energy Limited (ASX:SXY) +264.2%.
• Companies still remaining to report with the most upward revisions for FY 2013 in the past month include, Oil Search Limited Limited (ASX:OSH) 10 upward revisions, CSL Ltd. (ASX:CSL) 8 upward revisions, and QBE Insurance Group Ltd. (ASX:QBE) 8 upward revisions.
• Companies still remaining to report with the largest FY 2013 EPS% change in the past month include Western Areas Limited (ASX:WSA) +18.0%, Magellan Financial Group (ASX:MFG) +15.0% and Shopping Centres Australasia Property Group (ASX:SCP) +12.4%.
• Companies with the greatest potential upside based on S&P Capital IQ consensus target price include, Discovery Metals Ltd. (ASX:DM) +438.1%, Linc Energy Ltd (ASX:LNC) +306.5%, and Perseus Mining Limited (ASX:PRU)+252.2% (*data as of 6/30/13).
• 12 companies are expected to report annual earnings in July including:
• Origin Energy Limited (ASX:ORG) with an S&P Capital IQ EPS consensus estimate of, $0.71
• BHP Billiton Limited (ASX:BHP) with an S&P Capital IQ EPS consensus estimate of, $2.42
• Fortescue Metals Group (ASX:FMG) with an S&P Capital IQ EPS consensus estimate of, $0.50
• On June 23, 2013, Metcash Limited (ASX:MTS) reported annual earnings of $0.31, narrowly missing the S&P Capital IQ consensus estimate of $0.32. This was the fourth straight year that the company has failed to exceed analysts’ expectations. The wholesale distributor grew earnings by 3.3% when compared to last year. Revenues of $13.10 billion were slightly above consensus and up almost 6% versus a year ago. Its Food and Grocery segment has come under significant pressure from its loss on Franklin retail stores. However, it’s Liquor and Hardware & Automotive divisions both reported strong sales along with improved margins. Management did not provide any guidance, but incoming CEO Morrice announced they plan to update investors with their strategic plans in December. Shares of stock spiked up 5% following the earnings release, but treaded downward to finish the month.

Please click here to read the report

Chris Caton Chief Economist of BT Investment Management

Caton’s Corner July 2013
Share market volatility continued in June. At the close on 20 June, the Australian market had fallen by 3.4% from its 31 May level while the US market was down by 2.6%. This brings the year-to gains to 2.4% and 11.4% respectively. At the current low point for this correction, during the day on 13 June, the Australian market was down by more than 10% from its 14 May close of 5221. That low point may, however, be challenged on 21 June.

There is no doubt what the major international force driving markets is: the continued concern that the Federal Reserve may end its programme of quantitative easing (QE). QE expands the Fed's balance sheet, and the chart above shows the apparent effect this has had on the US share market in recent years.

Please click here to read the report

Investment Plus - Macquarie Private Wealth Research

During May the Australian dollar was down nearly 10% against the US dollar. In the shorter term, the lower domestic currency is expected to benefit Australian companies, particularly those with a global earnings footprint. Longer term, the weaker Australian dollar may improve the outlook for Australian economic growth.

Key points:

Global markets continued their positive trend in May. The US equity market continued to be supported by stronger than expected corporate earnings, with 42% of the companies that reported their first quarter 2013 results beating consensus by more than 5%. The European markets were broadly positive on slightly improved confidence. Despite China’s official purchasing managers index (PMI) surprising to the upside during May (at 50.8 versus consensus of 50.0), the Hang Seng fell 1.5%. In Japan, the Nikkei retreated by -0.6% as volatility in Japan’s bond market encouraged investors to take profits on an index that has risen more than 45% since the elections held during December 2012.

In Australia, economic data continued to highlight weakness in the economy, with sharp falls in consumer confidence, declining house prices, insipid retail spending (rising a modest 0.2%), waning business investment, falling job advertisements (down 2.4% in May) and downgrades from a raft of mining services companies. Despite the recent weakness, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.75% at their June Board meeting citing recent data is consistent with the outlook published by them last month.

While this month’s inaction on rates by the RBA indicates a reluctance to acknowledge the weakness in the economy, the board retained the bias to easing rates, noting the inflation outlook continues to provide scope to cut interest rates further if required. We expect that the likely timing of the next rate cut will be at the August Board meeting, following the release of June quarter inflation data.

Please click here to read the report

Oliver's Insights – The Fed, interest rates and bonds

Key points

• The US Federal Reserve (“Fed”) looks on track to start slowing its quantitative easing (“QE”) program later this year, but only if the economy continues to improve. More importantly, it’s unlikely to raise interest rates any time soon.
• This suggests a 1994-style bond crash remains unlikely for now. However, bond returns are still likely to remain poor as yields gradually rise to more normal levels.
• Shares are vulnerable to sharp rises in bond yields, but they offer much better value relative to bonds.

Please click here to read the article

Is the world ready for central bank cold turkey?

by Peter Elston, Head of Asia Pacific Strategy & Asset Allocation, Aberdeen Asset Management Limited

The US Federal Reserve (Fed) proposing to ease back on its asset purchase program has sent financial markets into a tailspin, particularly in the emerging world. It had been strongly suspected that the rise over the last year or so in both equity and bond markets was more the result of central bank juicing than improving fundamentals (‘exhibit one’ being government bonds which, if fundamentals were strengthening, should have been falling). This suspicion has been very succinctly confirmed by markets over the last week or so, as markets pre-empted tightening before Ben Bernanke confirmed plans in Wednesday’s speech.

Please click here to read the article

Sifting through the rubble - Greek investment trip 2013

Aberdeen Asset Management Limited 

At Aberdeen we believe nothing beats first-hand knowledge. From meeting company management face-to-face, to understanding the markets in which we are investing, conducting our own research is key to our investment process.

Bertie Thomson, Aberdeen Senior Investment Manager Pan-European Equities, visits Greece to gain a better understanding of the situation there, from the ground up.


Please click here to read the article

16 Things to Consider - 30th June 2013 Superannuation Checklist

With the end of the financial year rapidly approaching, it is timely to revisit some of the issues that could affect your super.

Self Managed Fund Trustees

1. Value fund assets
2. Investment Strategy
3. Separation of Assets
4. Auditor registration regime

Contributions

1. Timing of Contributions
2. Contribution caps
3. Claiming a tax deductions for personal contributions
4. Superannuation contribution deductions resulting in a tax loss
5. Co-contributions
6. Spouse contribution tax offset
7. Contribution splitting
8. Higher contributions tax rate for those earning more than $300,000
9. Superannuation Guarantee (SG)

Pensions

1. Minimum pension payments
2. Taxation of fund income following the death of a member in pension phase
3. Payment of minimum pension income in the year of death


Please click here to read the full article

It’s the valuations, by Andrew Fleming, Deputy Head of Australian Equities

The king of the Australian equity market during the month, again, was the bond market, with the sell off in bonds presaging a late month sell off in the equity market, led by the hitherto all conquering banks. Not far behind the king in influence was the crown prince of commodities, with commodity prices continuing to falter, and mining sector capex plans continuing to be wound back aggressively, seeing the second and third tier miners and mining service providers as battered as Greg Bird after State of Origin. No royal family is complete without a court jester leaving the assembly in stitches as they parlay their tomfoolery; the Federal Budget was released to rapturous silence during the month, and soon thereafter the Australian dollar dived, seeing foreign earning equities listed on the ASX keenly sought after. In all, this trinity of factors converged to produce an outsized return; just as was the case last month, albeit then on the less pleasant side of the ledger.

Valuing stocks on any basis other than the sustainable underlying cashflows produced, is playing with fire...

Please click here to read the article

Crunch time for the Australian economy

Latest insights from AMP Capital's Head of Investment Strategy and Chief Economist, Dr. Shane Oliver.

Key points

• With the fading of the mining investment boom, the Australian economy is in for a bumpy ride in the short term, but recession is likely to be avoided.
• More interest rate cuts and a lower A$ are likely to be required though, ultimately resulting in more balanced and stronger growth for the Australian economy in 2014.

Please click here to read the article

Merkel’s strategy for the euro by Michael Collins, Investment Commentator at Fidelity

by Michael Collins, Investment Commentator at Fidelity

June 2013

No person is better placed to save the euro than the chancellor of Germany. A pivotal point for the euro will arrive in September when German voters choose a leader for Europe’s strongest economy who will sit atop a coalition that will probably decide the currency’s fate.

Angela Merkel, the leader of the Christian Democratic Party, is favourite to be re-elected to a third, four-year term as leader of the biggest party in parliament. But if Merkel retains power – a feat no other leader of a major European country has managed since the crisis began – it will most likely be at the head of another coalition. To avoid any electoral mishaps while protecting the euro, she must persist with a schizophrenic political act that sits across Germany’s flawed strategy for saving Europe. Merkel’s political ploy is that to the world she must portray an image of a Germany that will do almost anything to save the euro. At the same time at home, she must make Germans think that her government is only offering limited help for struggling Europe.

Please click here to read the article

Is China headed for a financial crash? by Michael Collins, Investment Commentator at Fidelity

by Michael Collins, Investment Commentator at Fidelity

June 2013

China has been an incredible asset for the world’s economy over the past three decades. Low-priced Chinese goods helped keep inflation tame while the country’s greater export-driven wealth fanned global growth via higher demand for everything from iron ore to posh handbags. More recently, Beijing’s fiscal and monetary response to the global financial crisis helped Australia and other countries navigate the calamity. Now, however, many warn that China might lob a credit crisis on the world.

Please click here to read the article

What's is happening with Australian Stocks? Paul Taylor, Portfolio Manager of Fidelity Australian Equities

Paul Taylor, the Portfolio Manager of the Fidelity Australian Equities Fund, talks about the outlook for the Australian economy and why Australia’s stock market is more than a resources play.

What's your outlook for the Australia's economy?

• What are the key risks?
• The Australian dollar has been strong in recent years. Where is it headed?
• What’s the outlook for commodities given that Chinese demand could slow?
• How is the Fund positioned in the natural-resources space?
• What is your view on the financials sector, particularly on banks?
• What are the other overweights in the Fund?

Please click here to read the article

New worries for investors - how serious? by Dr. Share Oliver, Head of Investment Strategy & Chief Economist

Key points:

After strong gains shares were due for a correction. Worries about the Fed, Japan, China and the growth outlook in Australia have provided the trigger.  However, with the Fed tightening fears overdone, the US economy on a sounder footing, Japan looking stronger, China likely to grow around 7.5% and the Australian economy to benefit from low interest rates and a lower $A, a re-run of the 15 to 20% falls seen around mid 2010 & 2011 are unlikely.  Our cyclical view for shares remains positive, with further gains likely this year.  Please click here to read more

Oliver's Insights – The death of 'risk on/risk off'?

Key points:

• The 'risk on/risk off' pattern that has prevailed in investment markets since the global financial crisis (GFC) is showing signs of breaking down.

• This reflects reduced risks associated with the United States (US) and Europe and should be seen as a good sign.

• It means that individual assets and investments can go back to better reflecting their underlying fundamentals

Please click here to read the article

Planes, trains and automobiles, the merits of infrastructure investment by Alicia Low, Senior Credit Analyst, Schroder Investment Management

"Planes, trains and automobiles" 

Alicia Low, Senior Credit Analyst - Fixed Income, discusses the merits of infrastructure from an investment perspective and how to access opportunities

Please click here to read the article

"No time for complacency" by Martin Conlon, Head of Australian Equities, Schroder Investment Management

"No time for complacency"

Martin Conlon, Head of Australian Equities, reviews the investment landscape and discusses the likely impact of further quantitative easing, deciding it's not the time for complacency. 

Please click here to read the article 

Australian Taxation Office publication on Self-managed super fund and you

Self-managed super and you

Like other super funds, SMSFs are a way of saving for your retirement. Generally, the main difference between an SMSF and other types of funds is that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

SMSFs are not suitable for everyone and you should think carefully before deciding to set one up. It is a major financial decision and you need to have the time and skills to do it. There may be other, better options for your super savings. If you are considering an SMSF for your super savings, the publication Thinking about self-managed super (NAT 72579) provides you with some practical information. Licensed financial advisers, tax agents and accountants can also help you understand what is involved.

If you decide that an SMSF is the appropriate vehicle for your super savings, you need to ensure the fund is
set up and maintained correctly so that it is eligible for tax concessions, can pay benefits and is as easy as possible to administer. Setting up a self-managed super fund (NAT 71923) provides some basic information on this and the steps you need to follow to set up the fund correctly.

Once your SMSF is established, you as trustee control the investment of the contributions and fund earnings.
Your SMSF must have a trust deed that forms part of the governing rules for operating the fund. You must also prepare and implement an investment strategy and ensure it is reviewed regularly. There are rules and regulations you must follow to ensure the fund’s assets are protected to provide benefits in retirement.

While contributions are being made to the fund it is considered to be in the accumulation phase. The publication Running a self-managed super fund (NAT 11032) explains the responsibilities and obligations of trustees operating an SMSF. When one or more members retire, you as trustee need to understand and follow the requirements of the law and regulations governing the payment of benefits. This publication is designed to assist trustees who are required to make payments out of their SMSF. It is important to
note the rules and regulations that apply to funds in the accumulation phase continue even when one or more
members retire; however, additional rules apply to the retirement phase.

You should continually reassess the circumstances of the fund and each individual member to determine whether an SMSF is still the most appropriate option for your retirement savings. In some cases you may find that you no longer have the capacity to deal with the complexity or the time required to manage your SMSF.

You may decide that it is not cost-effective to continue to run your own fund. Depending on the circumstances it may be necessary to transfer member benefits to another complying super fund.


Other reasons why you might wind up your SMSF include when all members have left the SMSF (for example, they have rolled over their benefits to another fund or have died) or all the benefits have been paid out. Winding up a self‑managed super fund (NAT 8107) details the process you need to follow to wind up your fund.


Please click here to read the ATO's publication

MLC: 2013 Federal Budget Analysis

14 May 2013

The 2013 Federal Budget only contained a few surprises as many of the measures had already been announced.

Note: These measures are proposals only and may or may not be made law.

Summary

• The Medicare levy will increase by 0.5% to 2% pa from 1 July 2014.
• The $5,000 Baby Bonus will be removed from 1 March 2014. Instead, families eligible for Family Tax
• Benefit (Part A) will receive $2,000 following the birth of their first child, and $1,000 for each subsequent child.
• The superannuation concessional contribution cap will increase from $25,000 pa to $35,000 pa from:

             - 1 July 2013 for people 60 and over, and
             - 1 July 2014 for people 50 and over.

• From 1 July 2014, all pension asset earnings above $100,000 will be taxed at 15%.

Please click here to read more of the report

Oliver's Insight: The 2013-14 Australian Budget – struggling back to surplus

Key points

• The positives in the Budget are more for education, disability care and roads together with savings in middle class welfare.
• However, the deficit is worse than expected, with a surplus pushed out at least three years.
• While the Government has announced more budget savings, their impact is zero for the year ahead.
• It’s hard to see major implications for investment markets. 
• Australia’s public finances are benign compared to other advanced countries, but they should be much stronger given the biggest resources boom in our history. 

Please click here to read the report

Colonial FirstTech 2013 Budget Briefing

Introduction

Federal Treasurer Wayne Swan has handed down his sixth Budget, which confirms a range of recently announced proposed changes to superannuation, income tax and the Medicare Levy. It also announces a range of proposed changes to the social security and tax systems.

This FirstTech briefing discusses the impact to clients and recommended client strategies of the proposed changes announced in the Budget, particularly focusing on the following six key announcements:

• confirming proposed changes to superannuation announced on 5 April 2013
• increasing the Medicare levy by 0.5% from 1 July 2014
• not proceeding with tax cuts that were legislated to apply from 1 July 2015
• phasing out the Net medical Expenses Tax Offset
• limiting tax deductions for self-education expenses
• trialing means test concessions for pensioners looking to downsize their homes.

It is important to note that all announcements mentioned are proposed only at this stage, and may change prior to being legislated.

Please click here to read the Colonial FirstTech Budget briefing

What’s happening with Chinese stocks?

In this investment perspective, Martha Wang, the Portfolio Manager of the Fidelity China Fund, gives her views on China’s economy and highlights where she finds risk and opportunity.

May 2013

What your macro-economic outlook for China?

China’s economic growth for 2013 is likely to reach the high single digits and mildly increase from 2012 when the economy expanded about 8%. The current economic recovery is supported by an improvement in the export sector and the investment cycle, while the liquidity environment is largely accommodative. Over the medium term, with export growth likely to decline, China’s economy is expected to slow to high-single-digit from recent double-digit growth. Although this is a decline from the growth rates of the past decade, it is still a healthy and enviable growth rate compared with major developed economies. However, I believe that the government will be willing to accept a lower GDP growth rate as it will focus on the quality rather than quantity of GDP growth. Government efforts will be more focused on rebalancing the economy towards consumption and away from investment and improving efficiency. We could see more reforms in areas such as the financial sector, state-owned enterprises and the rural economy.


Please click here to read more of the article

The folly of the Cyprus bailout

by Michael Collins, Investment Commentator at Fidelity

May 2013

Cypriots, already reeling from the toughest conditions tied to a eurozone bailout, then learnt from a Reuters
exclusive that their humiliation extended to the Central Bank of Cyprus being forced to sell three-quarters of the country’s gold reserves to help meet a shock 25% jump in their rescue bill.1 The gold sale was outlined in a leaked European Commission document on the revised, and since-approved, bailout for Cyprus estimated to cost 23 billion euros (A$29 billion), a sum that exceeds the 20-billion-euro GDP of
the Greek-speaking southern half of the partitioned Mediterranean island that is part of the eurozone.

Please click here to read more of the article

Japan goes all out for renewal

by Michael Collins, Investment Commentator at Fidelity

May 2013

Quirky terms accompany a daring experiment that is underway on the world’s second-biggest modern economy. “Abenomics” formulated by the “reflationists” is about firing “three arrows” to thrust Japan’s economy out of two decades of deflation-ridden, stop-start growth. The weapons include full-bore monetary and fiscal policy and structural reform. If successful, policymakers around the world could adopt the strategy. Second-time Prime Minister Shinzo Abe, whose Liberal Democratic Party prevailed in lower-house elections in December, wants his brand of economics to end how Japan best serves as a warning of the damage asset bubbles can inflict. The country has failed to perk its economy since the bubbles popped around 1990, despite interest rates at almost zero, the invention of quantitative easing in 2001 and massive government fiscal stimulus that has boosted net public debt to about 130% of output (and gross debt beyond 230% of GDP). The reason is that the monetary and fiscal stimulus have been muddled, half-hearted and randomly applied.


Please click here to read more of the article

"Onshoring" and innovation

by Nick Armet, Investment Commentator at Fidelity

April 2013

Apple’s headline-grabbing decision to make computers in the US is not an isolated case. Last year, General Electric moved the manufacture of washing machines and refrigerators from China to Kentucky. Ford has bought home car production from China and Mexico to Ohio and Michigan. Google is assembling its Nexus Q media streaming device in California, while Caterpillar is opening a new factory in Texas. A 2012 survey by MIT of 198 US manufacturing firms with foreign operations found that 15% of them had firm plans to bring back some production to the US, while as much as one-third are considering such a m1o vTeh.e trend
is happening elsewhere too. In the UK last year, GlaxoSmithKline revealed plans to invest 500 million pounds (A$725 million) in a new bio-pharma manufacturing facility; the first time in 40 years the company has built a factory on British soil.


Please click here to read more of the article

Beware the rage of Europe’s dispossessed

by Michael Collins, Investment Commentator at Fidelity

April 2013

The political uprisings that have swept across north Africa and the Middle East since Tunisian street vendor Mohamed Bouazizi set fire to himself in December 2010 to protest against harassment and the confiscation of his goods have surprised analysts. No one should be shocked, though, if similar upheavals ripple through austerity-hit European countries. There is a growing risk that the resentment, despair and anger brewing among the eurozone’s dispossessed, including its 19.1 million unemployed, will explode.

Please click here to read more of the article

China’s shrinking workforce has big repercussions

by Michael Collins, Investment Commentator at Fidelity

April 2013

The coming years will be favourable ones for Chinese workers seeking hefty pay rises. A big contraction in the labour force will help their bargaining position no end, as it upturns China’s economy.

To understand the test confronting China it helps to canvass the work of an economist from the Caribbean island of Saint Lucia who won the Nobel Prize in Economic in 1979 for his theories on development. The “dual sector model” of Sir Arthur Lewis (1915-91) purports that economies advance without triggering inflation because the expanding industrial sector can scoop up labour from the subsistence primary (agricultural) sector . Basically, an unlimited supply of peasants willing to work in factories for low, but not subsistence, wages allows the industrial sector to power ahead by earning, then reinvesting, excessive profits. But there comes a time when the supply of surplus labour peters out and developing countries confront a labour shortage. The point at which an abundance of labour is about to vanish is known as a “Lewis turning point”. Among its symptoms: wage increases outstrip productivity, industrial profits decline, investment drops and inflation becomes a threat.

Please here to read more of the article

Interest rates still falling, more to go - AMP Capital's Head of Investment Strategy and Chief Economist, Dr. Shane Oliver.

Key points

• The Reserve Bank of Australia (RBA) has cut interest rates again and they are likely headed even lower, probably to 2.5%. Global interest rates also appear to be remaining low for an extended period.
• Low and falling interest rates mean low and falling bank deposit rates. The chase for yield will continue.

Please click here to read more of the article

Weekly Market Update by Shane Oliver of AMP Capital

Weekly Market Update by Dr Shane Oliver, Head of Investment Strategy & Chief Economist

Please click here to read the report

Vanguard Australia - Low yields and rising rates concerns: the implications for bond market investors

Vanguard Research

Executive Summary. The global fall in interest rates to very low levels post the 2008 financial crisis has provided fixed income investors with returns from rising bond prices that are significantly above average. Fear that “bond market bubble” conditions exist, and that the bubble could burst if yields start to rise rapidly, has become a frequent discussion topic amongst investors.

In this paper, first we re-address the role of bonds and their important diversifying characteristics within a portfolio of growth and defensive assets. We discuss how the maths of bonds influence returns after an interest rate rise and the difference in the performance dynamics of bond markets and equity markets, as well as the diversifying benefits of bonds in a portfolio with growth assets. We show the likely outcome from an unexpected interest rate shock on a bond portfolio. We also analyse the strength of forward yields as a predictor of the future direction of interest rates with respect to the short end. And finally, we show the
difficulties involved in trying to predict short term movements in interest rates and thus how counterproductive it could be to engage in investment strategies based on strong views about the direction of interest rates.

Please click here to read Vanguard's report

Checking in on the equity market

Vanguard | 30 April 2013

We checked in with Angus McLeod, Portfolio Manager in Vanguard's Equity Investment Group, to discuss the questions facing equity investors as well as the enduring role that equities play in a diversified portfolio.
The equity market has made some positive gains over the past nine months. Is now a good time to invest in equities?

After moving sideways for 18 months from January 2011 the Australian and US equity markets have both risen sharply: the S&P/ASX 300 by 25% and the S&P500 by 17% on a total return basis. Much of this strength has been driven by signs that central bank efforts in developed economies to stimulate demand with low interest rates and money printing are working as planned. Lower interest rates have encouraged investors into equity markets in search of better returns. Strong equity market performance has also been
driven by more positive economic news from the US; news from Europe and Asia has been mixed. The IMF forecasts higher global growth in coming years and as more global economic data releases reveal ongoing signs of an enduring recovery it's to be expected that equity market prices will improve further. As regards structuring a well-diversified investment portfolio, equities will always have a role to play in the growth component of an investment strategy.

Please click here to read more of the Vanguard's report

Vanguard Australia - The best of times, the worst of times: Why indexing is relevant in both

Over the past couple of decades the Australian share market has offered laboratory conditions for testing many theories about index versus-active investment strategies. In this article, we take a look at the performance of index and active managers through both bull and bear markets and discuss the subsequent portfolio construction implications. A common misconception among investors is that actively managed funds will outperform index funds in a bear market or that indexing only works in a bull market.


Please click here to read the Vanguard's report

Oliver's Insight - The Australian dollar - the best is behind it

Key points:

• After doubling in value against the US dollar (US$) over the last decade, the best is likely over for the Australian dollar (A$).
• The commodity price boom is starting to fade in response to a moderation in Chinese growth as commodity supply starts to increase. The impact of quantitative easing in the US is being blunted by rate cuts in Australia with the prospect of more to come, and the rise in the A$ has exposed the high cost base of the Australian economy.
• While further gains are likely in the value of the A$ against the yen (to around ¥110 by year end), the A$ is likely to remain range bound this year against the US$ with the risks on the downside, particularly over the next few years.
• For Australian based investors, this means less need to hedge global exposures back to A$. 

Please click here to read more of the report

Emerging Markets: There's more than one way to play

Emerging World Themes to Think On 

• Rising demand for healthcare in the emerging world due to an increase in GDP per capita.
• Need for agriculture goods as higher protein intake in emerging countries requires seed technology and fertilizer
• A preference for western brands among emerging markets consumers.
• Demand for energy, as emerging countries continue to require it to support their growing infrastructure and automobile purchases.
• Tendency toward industrial automation. For example, increasing wage levels and slowing productivity growth in China drive demand for greater industrial automation.

Please click here to read more of the report

eft Securities - Gold price recovers on surge in physical demand

Gold price recovers on surge in physical demand

 Precious metal prices partly recovered their recent losses last week, as depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters. The longer-term fundamental outlook for gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks. While gold might still need a catalyst to break through the US$1,500oz level, recent valuations are becoming increasingly attractive for physical buyers as evidenced by the high volumes on the Shanghai Gold Exchange, surging bar demand in mainland China and Hong Kong and by record US gold coin sales. Any
sign of easing by the European Central Bank this week and/or weak employment data from the US could be short-term catalysts to further gold price upside.

Please click here to read the full report

BTFG's Chief Economist, Chris Caton's shares his views and insight to the market-movers

Caton's Corner

The share market fell in March, for just the second month since last June. The ASX200 declined by 2.7% but remains up 6.8% for the year to date.

Including dividends, share investors are 8.1% ahead so far this year. It’s made a lot of difference what sector investors have been in. So far this year, consumer discretionary stocks have risen by 16.4% and the banks by 15.5%, while the resources sector has declined by 7.5% and materials stocks by 9.3%.

The US share market had a far better month, with the S&P500 index rising by 3.6%, to be up by 10% so far this year. Remarkably, the S&P rose in 11 of the 13 weeks of the March quarter. This index finished the month at an all-time record high.

Click here to read Caton's Corner - April 2013

EFT Securities - Why The Commodity Super-cycle is Far From Dead

Key Points

• The commodity super-cycle that started in the late 1990s is far from over.
• The combination of substantially higher absolute levels of demand and the increasing scarcity and rising cost of commodity production will force prices higher over the next 10 to 20 years.
• The industrialisation, urbanisation and rising wealth of large population emerging market countries will continue to drive demand higher.
• Although much attention has focused on a potential slowing of China and India growth over the next 10 years, per capita incomes are expected to triple over the coming 20 years, driving substantial increases in per capita consumption of a wide range of commodities.
• The long-term supply of most commodities will remain constrained due to their increasing scarcity and rising costs of production.
• Higher prices will encourage the more efficient use of the world’s scarce resources and incentivise the investment and innovation necessary to boost supply productivity.

By     Nitesh Shah, Associate Director – Research 

         Nicholas Brooks, Head of Research, ETF Securities

Please click here to read their article

Shane Oliver's Keys to successful investing

Key points:

• Four investment market realities: there is always a cycle, it's a mad, mad, mad world; starting point valuations matter a lot for returns; and the power of compound interest.

• Keys to successful investing: know yourself; seek advice; invest for the long term; diversify; turn down the noise; avoid short-termism; focus on investments offering sustainable cash flow; recognise there is no free lunch; buy low, sell high; don't fret the small stuff'; don't over rely on expert forecasts; recognise the aim is to make money, not to be right; beware the crowd at extremes; and if you have the right strategy, never despair. 

Please click here to read more of the article

Oliver's Insight: Are we in for another mid year bout of weakness?

Key points:

• After strong gains shares are at risk of a correction as we move into a seasonally weaker period of the year and given ongoing risks in Europe, a possible soft patch in US economic data and threats from a variety of sources such as bird flu and North Korea and as Australian economic conditions remain messy.

• However, less scary conditions in Europe, stronger US private demand, aggressive Japanese monetary reflation & emerging signs the Australian economy is responding to lower interest rates suggest a re-run of the 15 to 20% falls seen around mid 2010 and mid 2011 are unlikely.

• Notwithstanding the risk of a bout of mid year volatility our broader cyclical view for shares remains positive, with further gains likely this year.  

Please click here to read more of the article

Oliver's Insight: China worries return - but how serious are they?

Key points

• China worries are overblown. Property tightening is likely to remain highly targeted and unlikely to threaten overall growth with aggressive monetary tightening unlikely.
• On the other hand, reflecting a desire for more sustainable growth there has not been enough stimulus to ensure a strong rebound. Rather, growth this year is likely to come in around 8%, similar to last year’s 7.8%.
• Chinese shares remain cheap. While periodic growth worries are likely to constrain returns they are nevertheless likely to be reasonable this year.

Please click hear to read more of the article

Shane Oliver: Money printing and hyperinflation - What are the risks?

• Concerns that quantitative easing will end in hyperinflation and economic mayhem are way overblown.
• Constrained demand for credit along with significant spare capacity suggests the risk of higher inflation is still several years away.
• However, the broader picture suggests that if global recovery continues the risk in the years ahead will shift
• from disinflation and deflation to one of rising inflation

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Oliver's Insight: Asset allocation is critical for investors - even as the world mends

Key points in this note:

• The GFC and the low and volatile returns seen in subsequent years highlighted the importance of asset allocation in determining returns and managing volatility.
• While a mending global economy will result in better returns, asset allocation will remain critical for investors as returns will likely remain constrained, volatile and lowly correlated.
• Improved approaches to asset allocation, in particular dynamic asset allocation, and the use of highly liquid and low cost futures and exchange traded funds (ETFs) further enhance the significance of asset allocation

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