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.

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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.

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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.


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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


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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...

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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.

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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.

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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.

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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?

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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