Oliver's Insights | AMP Capital

Interest rates still falling, more to go

08 May 2013

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.

The Australian dollar - the best is behind it

02 May 2013

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$.

Keys to successful investing

19 April 2013

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.

Are we in for another mid year bout of weakness?

10 April 2013

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.

China worries return – but how serious are they?

05 April 2013

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.

Asset allocation is critical for investors - even as the world mends

02 April 2013

While the mending global economy should 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 signiﬁ cance of asset allocation.

Money printing and hyperinﬂation – what are the risks?

21 March 2013

Concerns that quantitative easing will end in hyperinﬂation and economic mayhem are way overblown.
Constrained demand for credit along with signiﬁ cant 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 deﬂ ation to one of rising inﬂation.

Australian proﬁts, growth, interest rates and shares

07 March 2013

The December half profit reporting season was far better than feared and big cost controls have helped lay the ground work for stronger profit growth ahead.
While interest rates may need to fall a bit further, green shoots of recovery suggest we are at or near the low and more importantly, point to an improvement in economic and profit growth on a 12-month horizon.
While the share market has moved up ahead of profits this is not particularly unusual and price to earnings multiples are just around their long run average.

A new secular bull in shares is close, but with constrained returns

01 March 2013

After being in a long-term, or secular, bear market since March 2000 that has resulted in very poor returns for investors, global shares led by the US are likely at or close to entering a new secular bull market.
However, returns are likely to be constrained relative to the last secular bull market, which started in the early 1980s, as valuations are not as attractive, the tailwinds from falling inflation and rising profit shares will be absent and global growth is likely to remain more constrained.
Against this backdrop asset allocation will remain critically important, macroeconomic developments will remain a key driver of returns and it will remain important to focus on assets providing decent income flows and/or good growth potential such as commercial property, infrastructure, quality shares and emerging market assets.

The Italian election and European risk

27 February 2013

An inconclusive election in Italy, which has put a cloud over whether it will continue with economic reforms, has seen the return of worries regarding the Eurozone.
Uncertainty is likely to linger for several weeks, but as we have seen in recent times in Europe there is a danger of overreacting as blow-ups have tended to settle down without the feared collapse of the euro.
Our assessment is that while the correction in share markets may have a bit further to go, not helped by Italy, the broad rising trend in markets will likely continue.

What's the chance of a bond crash?

22 February 2013

Sovereign bonds have had a great run, but with yields near record lows and global growth improving this is unlikely to continue.
A 1994 style bond crash is a risk, but unlikely at this stage as it’s hard to see monetary tightening this year. The most likely scenario is a gradual grind higher in bond yields.
Very low bond yields highlight the need for active fi xed income management where the portfolio manager can increase the exposure to less vulnerable credit and reduce a portfolio’s duration to limit the impact of a rise in bond yields.

A new bull market in shares?

08 February 2013

Shares are overbought and vulnerable to a correction. February is often a soft month and current risks regarding Italy, Spain, the US budget and earnings results in Australia may constrain markets in the very short term.
However, the rising trend in share markets since late 2011, reasonable valuations, improving global economic news and easy monetary conditions suggests shares have likely entered a new cyclical bull market.

Japanese reflation

24 January 2013

While it likely still has more to do, the Bank of Japan is on a path towards major policy reflation for the Japanese economy.
This is likely to see further downwards pressure on the yen and strong gains in Japanese shares.
It is also positive for the global economy as Japan will likely no longer be a drag on global growth going forward.
While Japanese monetary reflation adds to upwards pressure on the Australian dollar, a stronger Japan will be positive for Australia overall as it remains our second biggest export market.

2013 and beyond - a list of lists

22 January 2013

Bullets likely to be another good year for investors underpinned by a lessening in tail risks, very easy global monetary conditions and improving global growth.
Watch global business conditions purchasing managers’ indices (PMIs), European bond yields, Chinese money supply growth, the Australian dollar and Australian housing indicators.
Australia will likely continue to grow, but could go through a rough patch as mining investment slows before picking up pace during the second half.
There is always a cycle and investors should avoid the crowd. Right now the cycle is moving away from cash and bonds in favour of equities and growth assets.

The US fiscal cliff, debt ceiling & economic outlook

03 January 2013

The US deal to avert the fiscal cliff combination of tax hikes and spending cuts is not the long term “grand bargain” that could have been hoped for to address America’s long term budget and debt problems.
Such issues will come up again in February in negotiations to raise America’s debt ceiling, possibly resulting in another bout of market volatility around then.
However, by scaling back the bulk of the huge recession threatening fi scal cutbacks that would otherwise have occurred this year, the fi scal cliff deal means that the US economy will likely be able to pick up speed to around 2.5% helped in particular by a housing recovery.
This is great news for the global economy and growth assets such as shares.