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Provision Newsletter

Don’t fight the Fed… or the ECB or RBA

Posted On:Jun 21st, 2019     Posted In:Rss-feed-oliver    Posted By:Provision Wealth

This decade has now seen three global growth scares – around 2011-12, 2015-16 and now since last year. Each have been associated with softening business conditions indicators (or PMIs) as indicated in the next chart – see the circled areas.

Source: Bloomberg, AMP Capital

And each have been associated with roughly 20% falls in share markets.

Source: Bloomberg, AMP Capital

All have seen central

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This decade has now seen three global growth scares – around 2011-12, 2015-16 and now since last year. Each have been associated with softening business conditions indicators (or PMIs) as indicated in the next chart – see the circled areas.


Source: Bloomberg, AMP Capital

And each have been associated with roughly 20% falls in share markets.


Source: Bloomberg, AMP Capital

All have seen central banks shift towards easing to varying degrees. And in the first two this saw growth indicators pick up again and share markets rebound and clearly move on to new highs. We now seem to be seeing a re-run – at least with respect to central banks.

Central banks go from tightening to neutral to easing

It had looked like a shift from a tightening bias to a neutral/slight easing bias – the US Federal Reserve’s “patient” “pause” and end to quantitative tightening and the European Central Bank’s new round of cheap bank financing (what they call TLTRO) and pushing out its guidance on how long it won’t be raising interest rates for – would do it for the Fed and the ECB this time.

But then the trade war resumed in May adding to a new round of fears about global growth and inflation. And so the ECB and Fed look to be going beyond neutral and back to “whatever it takes”, joining central banks in China, India, Australia, New Zealand and other countries in easing:

  • ECB President Mario Draghi has indicated this week that “in the absence of improvement…additional stimulus will be required” and that it “will use all the flexibility within our mandate to fulfil our mandate”. Further ECB easing could include more rate cuts (taking them further into negative territory) and a return to quantitative easing. ECB easing in July or September is looking very likely.

  • The US Federal Reserve at its June meeting has clearly shifted in a very dovish direction strongly hinting at interest rate cuts ahead. It downgraded its economic activity assessment from “solid” to “moderate”, it noted falling inflation expectations, it dropped the reference to being “patient” in raising rates, it noted that uncertainties have risen, it lowered its inflation forecasts to below the 2% target and it said it will “closely monitor” the economy, which is often code for moving to easing. While its dot plot of Fed officials’ interest rate expectations still sees rates on hold this year, it’s now line ball with 8 out of 17 officials now seeing a cut of which 7 see two cuts and many of those who have rates on hold see an increased case for a cut and it only requires one of those to shift for the dot plot to move to a cut this year. What’s more, the dot plot now sees a cut next year and it has lowered the long run rate to 2.5%. The dot plot is well down from a year ago when three rate hikes were indicated for this year and one for next year. Overall, absent a clear move towards resolution of trade issues and much better data the Fed looks on track for a cut in July and we continue to see two Fed rate cuts this year.


Source: US Federal Reserve, Bloomberg, AMP Capital

The shift towards monetary easing by the Fed and ECB risks ramping up currency wars again – at least in the minds of commentators – but as we have seen in the past this is just a means of spreading easing globally. And many central banks are already easing anyway.

This is of relevance to the Reserve Bank of Australia, which would prefer to see a lower Australian dollar. The Fed now moving towards easing does make the RBA’s job a little bit harder on this front. However, we still see the RBA easing more than the Fed as the Australian economy is weaker than the US economy and has much higher labour market underutilisation than the US (13.7% of the workforce in Australia versus 7.1% in the US). So, we still see the Australian dollar heading down to around $US0.65 by year end. But Fed easing which will weigh on the $US generally is one reason why the $A is unlikely to crash to past lows.

Presidents Trump and Xi to meet

In the meantime, Presidents Trump and Xi will meet at the G20 meeting in Japan next week. This could lead to a delay in the next round of tariff hikes on China – on the roughly $US300bn of remaining Chinese imports. Ultimately, I expect a deal to resolve the trade dispute because of the threat to growth in both countries (and the risks this poses to Trump’s 2020 re-election prospects). But given the false starts so far it’s not clear this round of meetings will do it just yet.

But it looks like we will get some combination of a trade deal/easier monetary policy or no trade deal and even easier monetary policy.

Implications for investors

The risks are higher this time around given the trade war mess and with the US yield curve inverting – although it does give false signals, has long lags and may be distorted by the threat of more quantitative easing, recently it may more reflect a plunge in inflation expectations as opposed to growth expectations and the normal excesses that precede US recessions aren’t present to the same degree now.

And there will be bumps along the way, i.e.) shares could still go down in response to weak economic data and trade upsets before they go up and we are in a seasonally weak part of the year.

However, for investors it’s always worth remembering the old line “don’t fight the Fed”…or the ECB or RBA, etc. This is because low rates make shares cheaper and can help boost earnings.

While there is scepticism that central banks with the ultra low/negative rates and QE will do the trick, an investor would have made a huge mistake over the last decade betting against them!

So while the risks are higher this time around, my inclination is still to see the current period as just another global growth scare like those in 2011-12 and 2015-16 which will give way to somewhat stronger growth globally and higher share markets on a six to 12 month view.

If you would like to discuss any of the issues raised by Dr Oliver, please call on |PHONE| or email |STAFFEMAIL|.

 

Source: AMP Capital 20 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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Can I go back to work if I’ve already accessed my super?

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity

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When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity and boredom1. Regardless of your reason for returning to work, there are certain rules you should be aware of.

What are the superannuation retirement rules?

You generally will only be able to access your super if you’ve reached your preservation age and retired, ceased an employment arrangement after age 60, or turned 65. If you’re thinking about returning to work after retirement there are rules about super you may need to be aware of depending on your circumstances.

We look at some of the common situations below.

I have reached my preservation age but am less than age 60

If you’ve reached your preservation age and wish to access your super, you would usually be required to declare that you’re no longer in paid employment and have permanently retired.

If your personal circumstances have since changed, it is possible for you to return to the workforce, however your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration previously stating your intent.

I ceased an employment arrangement after age 60

From age 60, you can cease an employment arrangement and don’t have to make any declaration about your future employment intentions.

If you happen to be working more than one job, ceasing just one will meet the requirement and you can continue working in the other.  You can choose to access your super as a lump sum or in periodic payments (which you may receive via an account-based pension).

If you’re in this situation, you can return to work whenever you like as you wouldn’t have needed to declare permanent retirement before accessing your super.

I’m 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get full access to your super savings. This means you can continue working or return to work if you have previously retired.

What happens to your super if you return to work?

Regardless of which of the groups above you fall into, if you have begun drawing a regular income stream from your super savings, you can continue to access your income stream payments whether you return to full or part-time employment.

If you haven’t actually accessed your super but have met one of the retirement conditions of release (and advised your fund of this) then your super will generally remain accessible if you return to work.

Meanwhile, it’s important to note that any subsequent super contributions made after you return to work will generally be ‘preserved’ until you meet another condition of release (unless you are aged 65 or over).

Can I access my super at 55 and still work?

In the past, Australians could access their super from as young as 55, but the preservation age is gradually increasing to age 60 and only people born before 1 July 1960 reached their preservation age at 55.

Regardless of your preservation age, you must meet certain criteria before you can access your super, as outlined above. However, if you’re age 60 or over, these criteria simply mean you need to end an arrangement under which you’re gainfully employed.

Rules around future super contributions

Your employer is broadly required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings, once you earn more than $450 in a calendar month.

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

However, if you’re aged 65 or over, and intend on making voluntary contributions, you must first satisfy a work test requirement showing that you have worked for at least 40 hours within a 30-day period before you are eligible to make voluntary contributions in a financial year. Voluntary contributions can’t be made once you turn 75 and the last opportunity is 28 days after the end of the month where you turn age 75.

Effects of withdrawing super on your age pension

If you’re receiving a full or part age pension, you’d know that Centrelink applies an income test and an assets test to determine what you get paid. Your super or pension account will be included as part of your age pension eligibility assessment.

Any employment income will also be taken into account as part of this assessment, so make sure you’re aware of whether your earnings could impact your age pension entitlements.

For those eligible for the Work Bonus scheme, Centrelink will apply a discount to the amount of employment income otherwise assessed.

Where to go for assistance

For information and tips around re-entering the workforce, check out the Department of Employment website. It includes details about the government’s jobactive service and the New Enterprise Incentive Scheme for those looking to become self-employed.

There are also websites like Older Workers and BeNext, which focus specifically on mature-age candidates, if you’re looking for job opportunities.

If you have further questions about how a return to work could impact your ability to access your super, speak to us on |PHONE| .


1https://www.abs.gov.au/ausstats/abs@.nsf/mf/6238.0

Source : AMP June 2019 

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

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Rent vs lifestyle—can you have it all?

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Rental payments can make a real dent in your bottom line so it’s a good idea to find a balance between location and lifestyle

So you’ve found the apartment of your dreams.

It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK,

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Rental payments can make a real dent in your bottom line so it’s a good idea to find a balance between location and lifestyle

So you’ve found the apartment of your dreams.

It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK, it’s a bit pricey but it ticks all the boxes, and you can worry about the rental payments later. Meanwhile you need to make a decision as there are plenty of willing buyers in line behind you.

Now where do you sign…

STOP! You might end up living in a palace but if you can’t afford to buy a bagel in the local artisan bakery then maybe it’s time to rethink your priorities. If you’re spending a high percentage of your salary on rent then you might be leaving yourself short and unable to enjoy any kind of social life, let alone save up for goals like holidays, a new car or buying a place. Equally, if you’re living in a cockroach-infested dive miles from anywhere then you’re unlikely to be happy even if you’re saving loads of money.

So how much rent is right for you?

If you’re looking to other Australians for a guide, the cost of renting varies enormously around the country – the percentage of our income going on rent ranges from 37.9% of average weekly earnings in Sydney to 25.2% in Hobart1.

Anyone looking for a central one-bedroom apartment in one of our state capitals could pay from $1,035 a month in Hobart to $2,681 in Sydney, as in the table below.

City

Monthly cost of renting one-bedroom apartment (city centre) $

Monthly cost of renting one-bedroom apartment (outside city centre) $

Potential saving of moving to ‘burbs $

Sydney

2,680.93

1,956.54

724.39

Melbourne

1,817.34

1,399.96

417.38

Brisbane

1,772.04

1,285.84

486.20

Perth

1,513.61

1,028.86

484.75

Adelaide

1,411.16

1,043.36

367.80

Hobart

1,035.20

1,041.75

-5.55

Source: https://www.budgetdirect.com.au/interactives/costofliving/

If you’re happy to live in the ‘burbs you’ll save money, with a one-bedroom apartment ranging from $1,029 a month in suburban Perth to $1,957 in…yes…greater Sydney.

Of course, in Tassie they do things a bit differently and you’ll actually save the price of a latte by moving into the city centre from the burbs.

But everywhere else you could potentially save on rent by living in a slightly less trendy area—anywhere from $368 in Adelaide to $725 in…no prizes for guessing…Sydney again.

Finding ways to spend less and save more

The reality is you may not be able to up sticks and relocate so easily. If you’re like most Australians, you probably have family and work commitments that tie you to your local area.

So there may be other ways you could find a better balance between rent and lifestyle and save money—whether you’re just off Bourke Street or ensconced in the ‘burbs.

  • There could be some ways you could save on nights out by taking advantage of deals or making more clear-headed late-night choices.

  • There could be some ways you could save on essentials by being a bit more disciplined with your budgeting.

  • There could be some ways you could save on weekend family activities – a great lifestyle doesn’t need to be expensive, and if you’re within a stroll or ride of a fantastic beach or bushland then you’ve got regular afternoon entertainment on your doorstep, free of charge.

Making sense of your finances

Meanwhile, finding the sweet spot with your rental costs all depends on your personal circumstances and financial goals. We can help you make sense of your outgoings and draw up a long-term plan to build your wealth. Please contact us on |PHONE| for assistance .

https://www.finder.com.au/how-much-of-our-wages-do-we-spend-on-rent-in-australia

Source : AMP June 2019  

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

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Boost savings with compound interest

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

If your goal is to save for the future, or perhaps start putting away for your children’s education – then unless you plan on putting your savings under your mattress, the sooner you start the better.

That’s because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you

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If your goal is to save for the future, or perhaps start putting away for your children’s education – then unless you plan on putting your savings under your mattress, the sooner you start the better.

That’s because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you save.

The difference between simple interest and compound interest

There are two main types of interest:

Simple interest is where a one-off interest payment is made at the end of an agreed, set period of time.

For example: if you invest $10,000 in a term deposit at 5% interest per annum, and don’t withdraw any money, then you’ll have $12,500 at the end of 5 years. That’s because the 5% annual interest rate is worked out based on the value of the initial investment and paid in full at the end.

Simple interest earnings over five year

Compound interest is where interest is paid in regular intervals, building on top of earlier interest paid. The result is a snowball effect of interest earning interest.

For example, (using the same figures as the simple interest example above), an initial investment of $10,000, earning 5% interest per annum with compound interest paid monthly, will give you $12,834 after five years. That’s because every month the interest earned was earning more interest.

Compound interest earnings over five years

Compound interest will continue to build on itself in this way, assuming nothing changes. How quickly it grows will depend on when you start your savings plan, what the interest rate is, and whether you make contributions (or withdrawals).

How to work out compound interest on your savings

The easiest way to work out how much compound interest you could earn on your savings, is to use an online compound interest calculator, that can do it for you.

Saving for the future

If you’re interested in using compound interest to help your savings grow, then the sooner you start, the better. That’s because, like any good snowball, the earlier it starts rolling, the more snow it will collect along the way.

For example, if you were keen to put aside money for your child’s education, and from the day your child was born, you put $10 per week into a bank account paying 6.25% pa, then by the time they turned 25, their savings would be $31,259. Of that, the interest earned would be $18,372 – outweighing the overall deposits made along the way.

If you started saving later, when your child turned 10, with a first deposit of $5,000, then by the time your child turned 25, they would have savings of $25,611. Of that, the interst earned would be about equal to the overal deposits made, and your savings would be about $6,000 less than if you’d started earlier, without an initial deposit.

This example uses the ASIC Money Smart Calculator1 featuring an effective interest rate of 6.43%. It’s important to remember that a model is not a prediction and uses assumptions. Results are only estimates, the actual amounts may be higher or lower.

Tax on compound interest

It’s worth remembering that like any income, compound interest earnings must be declared to the tax office, even if it’s savings for a child.

Who declares the interest earned, depends on who owns or uses the funds of that account. You can find out more about the tax requirements from the Australian Tax Office.

If you seek further discussion on this topic please contact us on |PHONE|.

1ASIC Money Smart Compound Interest Calculator –  https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator

Source : AMP June 2019

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

 

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Australian growth will be constrained but here’s nine reasons why recession is unlikely

Posted On:Jun 18th, 2019     Posted In:Rss-feed-oliver    Posted By:Provision Wealth

For some time our view has been a less upbeat on the Australian economy than the consensus and notably the RBA. The reasons were simple. The housing cycle has turned down and this is weighing on consumer spending. And this is at a time when the risks to the global economy have increased as the trade war threat has ramped

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For some time our view has been a less upbeat on the Australian economy than the consensus and notably the RBA. The reasons were simple. The housing cycle has turned down and this is weighing on consumer spending. And this is at a time when the risks to the global economy have increased as the trade war threat has ramped up again. All at a time when high levels of underemployment are keeping a lid on wages growth and, along with technology and competition, inflation. Consequently we have been expecting rate cuts this year which have now commenced and have further to go. We see a strong case for more fiscal stimulus to help the RBA in boosting growth and see an increasing risk that the RBA may have to use some form of quantitative easing to achieve its inflation target.

But the gloom around the Australian economy seems to have gone over the top lately with all the talk around rate cuts adding to the sense of malaise and more and more talk about a recession being inevitable. Surely it can’t be that bad! And why despite all this doom and gloom is the share market at an 11-year high, up 16% year to date and just 4% shy of its 2007 resources-boom high. There must be some positives around. And there are! So, to inject some balance into the debate around Australia here is a list of positives. They are partly why we don’t see Australia as being about to plunge into recession.

1. Australia’s current accounts deficit has collapsed

As a share of GDP, it’s the lowest since the 1970s as high iron ore prices have combined with solid growth in export volumes and pushed the trade balance into a record surplus. The current account deficit is the gap between what we spend as a nation and what we earn – so its near disappearance means we are less dependent on foreign capital. This is a big one given that a big scare of the 1980s in Australia was that the large current account deficit and rising foreign debt would lead to a major crisis, collapse the economy and require an IMF bailout. Like with most doomster stories on Australia, we are still waiting!


Source: ABS, AMP Capital

2. The Australian dollar helps stabilise the economy

The $A is down 38% from its 2011 high and is likely to fall further and this provides a shock absorber for the Australian economy as a lower $A makes Australian businesses that compete internationally more competitive – eg higher education, tourism, mining, manufacturing, agriculture.

3. The drag from falling mining investment is over

The big drag on growth (which was up to around 2 percentage points at one stage) as mining investment fell back to more normal levels as a share of GDP is likely over and mining investment plans look to be moving up again.

4. There is scope for extra fiscal stimulus

The Federal budget is nearly back in surplus and while we have had a long run of deficits our public finances are in good shape compared to the US, Europe and Japan.


Source: IMF, AMP Capital

Some fiscal stimulus is already on the way with tax refunds for low and middle income earners. While the Government is focussed on achieving a surplus it seems to be recognising the case to do more to help the economy with talk of bringing forward infrastructure spending.

5. Infrastructure spending is booming

Infrastructure spending is booming. While growth in public capex may peak this year, NSW has flagged another round of asset sales to fund new infrastructure spending and suggestions to bring back Joe Hockey’s asset recycling program (that saw the Federal Government provide a financial incentive to states to sell existing assets and use the proceeds to plough back into new infrastructure spending).

6. There is no sign of panic property selling

Despite the falls in property prices we have seen no sign of a “crash”. Non-performing loans are still relatively low even in Perth where prices are down nearly 20%. There has been no significant panic selling. The switch for many from interest only loans to principle and interest has not seen mass defaults or mass selling. And the combination of the removal of the threat to negative gearing and the capital gains tax discount along with rate cuts has seen buyer interest return.

7. The political environment remains sensible

While the Federal election has been analysed to death, the bottom line is that Australians as a whole were not prepared to support a populist agenda of higher taxes on the “top end of town”, substantially increased public spending and redistribution. Just like they weren’t prepared to support a more right-wing free market agenda in 1993. Australia is not immune to the populism seemingly sweeping the world, but it seems to be limited to a relatively minor influence. Maybe it’s the moderate climate, maybe it’s the lack of extreme inequality, maybe it’s the compulsory voting system that keeps motivated extremists in their place in favour of a sensible centre.

Whatever it is – economic policy making in Australia could always be better (economists would love to see a greater focus on economic reform) but it’s generally pretty sensible.

8. Population growth remains strong

Australia’s population growth at around 1.5% pa is strong and supported by a high fertility rate and high levels of immigration. While it’s far from a world beater – with the top 10 countries by population growth seeing growth of between 3 to 5% pa – it is at the high end of comparable countries and roughly double the OECD average and of the US and UK and is faster than India.

Of course, strong population growth is not without issues –around integration, congestion, the environment, adequate housing and infrastructure. And ultimately in terms of living standards it is economic growth per person (or per capita) that matters not total growth and lately per capita GDP has gone backwards. But solid population growth also has significant benefits in terms of supporting demand growth in the economy, preventing lingering oversupply (as today’s excess – say Sydney apartments – can quickly turn into tomorrow’s shortfall) and keeping the economy dynamic. It also means that while Australia’s population is ageing, the problem is far less challenging than in most advanced countries as by comparison Australia with a median age of 37 is relatively young and it has a relatively low old age dependency ratio.

9. The RBA can still do more

While the official cash rate is at a record low of 1.25%, it can still go lower and we think it will, whereas in Europe and Japan rates are already at zero (or just below). Our view remains that the RBA will cut the cash rate to 0.5% beyond which it will probably conclude it’s of little benefit as it will make it harder for banks to pass on rate cuts as they will have more bank deposits at zero and so cutting mortgage rates would mean reduced profit margins and probably less lending.

But the RBA can still do quantitative easing – if needed. This basically involves seeking to boost the economy by injecting more cash into the economy using printed money. The lesson from the US, Europe and Japan was to go early and go hard. Japan and then Europe left it a bit too late, but the US went early and has achieved more success with QE.

QE as practiced there – using printed money to buy assets on the hope that banks would use the cash to lend, people would borrow and investors would help the economy by taking on more risky investments – may help. But it may not be the most efficient approach (as much of the cash just ended up in bank reserves) or the most equitable (to the extent it boosted prices for shares and other risky assets that are disproportionately held by high income/wealthier people).

A better option in terms of QE may be to use printed money to finance fiscal stimulus – maybe by directly buying bonds issued by the government. This is a radical step. The Austrian economists would scream hyperinflation! But they did with QE in the US a decade ago too and we are still waiting. In any case the problem is a lack of inflation and the risk of deflation. But it would work in terms of boosting spending in a fair way. It could involve either government spending on things like infrastructure (which both adds to demand and the economy’s productive potential) or tax cuts or “cheques in the mail” with use by dates.

But bear in mind Australia is a long way from needing to do this – we are not in recession so it’s really a debate about what can be done ahead of time which is actually healthy. Better this than wait for a crisis to hit then scramble on what to do.

Australian shares – what’s going on?

Which brings us to the strong Australian share market. Much of the recent surge in the Australian share market reflects strong gains in mining stocks on the back of the strong iron ore price, strong demand for high yielding stocks as bond yields have plunged and the post-election bounce. And if global shares have a further setback on the back of trade fears then Australian shares will be impacted too. But it’s also worth noting that the Australian share price index has underperformed global share markets for almost a decade now reflecting tighter monetary policy from October 2009, the surge in the $A into 2011, the end of the commodity price boom, worries about a property crash and a mean reversion after Australia’s 2000 to 2009 outperformance. Many of these factors have run their course, have reversed or have been factored in by the share market so maybe the decade-long underperformance by Australian shares is coming close to an end.


Source: Thomson Reuters, AMP Capital

Concluding comment

The point about all this is that while Australian growth may be going through a rough patch and this could go on for a while yet, there is a bunch of things going well for the Australian economy and there is plenty of scope for more monetary and fiscal stimulus. So – barring a significant global downturn threatening our export earnings big time – recession is unlikely, and it would be wrong to get too gloomy on Australia.

If you would like to discuss any of the issues raised by Dr Oliver, please call on |PHONE| or email |STAFFEMAIL|.

 

Source: AMP Capital 18 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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How to capitalise on structural changes in Australian listed real estate

Posted On:Jun 17th, 2019     Posted In:Rss-feed-market    Posted By:Provision Wealth

The proliferation of online shopping has heralded a structural shift in the marketplace. With it comes challenges for investors, particularly passive investors whose portfolio returns depend, in part, on history repeating itself.

This new environment raises a number of questions for investors including:

What are the prospects for other property options, particularly industrial real estate?

How should investors think about property investing as

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The proliferation of online shopping has heralded a structural shift in the marketplace. With it comes challenges for investors, particularly passive investors whose portfolio returns depend, in part, on history repeating itself.

This new environment raises a number of questions for investors including:

  • What are the prospects for other property options, particularly industrial real estate?

  • How should investors think about property investing as this structural shift occurs?

  • What are the consequences for remaining a passive investor and the billions of dollars allocated that way?

  • How much of an investor’s portfolio should be in retail property? Should it be the 48 per cent that it is today when passively invested? (62 per cent when leverage is removed)

  • What role does active investing have?

 


Read the Whitepaper

The following paper considers these questions and concludes that the best opportunities for property investors lay in sectors away from areas that have worked over the past decade, and that there are lessons that can be learnt from other global markets.

 

 
 

DOWNLOAD

 
 

 If you would like to discuss any of the issues raised in this white paper, please call on |PHONE| or email |STAFFEMAIL|

 

Author: James Maydew BSc (Hons), MRICS Head of Global Listed Real Estate Sydney, Australia

Source: AMP Capital 17 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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