Investment Update Video’s

Investment Update Video’s

Consumer confidence and interest rates

Investors are looking for a sense of where interest rates are heading around the world. Consumer confidence is one of the best guides.

Consumer spending is a key driver of between 50% and 70% of economic activity in developed economies like the US and Australia. How consumers feel is critically important to economic growth and the outlook for monetary policy.

So what is consumer confidence telling us now?

Americans spending up

In the US, consumer confidence is running at almost-record highs, and certainly at the highest level since early 2000. That confidence is driving strong consumer spending in the US.

But there is still scope for Americans to increase their spending because they are saving quite a lot of money. They can run down those savings to spend more.

At the same time, strong employment growth, signs of a pick-up in wages, and tax cuts will all keep consumer spending quite strong. That supports our belief that the US Federal Reserve will keep raising interest rates at a gradual pace.

Good but not fantastic

Elsewhere around the world the story is more mixed.

In the eurozone consumer confidence is high relative to its own history, but it’s not shooting the lights out. It’s ok; down slightly from early this year, but it’s keeping growth ticking over in the eurozone. Japan is similar; consumer confidence is good but not fantastic.

It’s a similar story in Australia. Consumer confidence is running around its long-term average. It had been above average, but then fell sharply in September after the political turmoil in Canberra. Consumer confidence rebounded 1% in October.

Wage and housing worries

That average level of consumer confidence is roughly consistent with average household consumer spending in Australia.

The big thing to worry about is very low wages growth and falling house prices in Sydney and Melbourne. Auction sales volumes are well down from the highs of last year and running around 50% or less in both Sydney and Melbourne, which is consistent with further price declines. Our forecast is for top-to-bottom falls of around 15% out to 2020 in these two cities and there is risk on the downside.

Sluggish wages growth and house price falls in the major capital cities are going to be a bit of a drag on consumer spending in Australia going forward.

Downside risks

When you think about the big picture on interest rates, consumer confidence provides a good guide. The US Fed is raising interest rates. There is less urgency in Europe and Japan.

And in Australia, similarly, there is no urgency to raise rates. If anything, you could still debate whether the next move in rates here might be a rate cut given those concerns about falling house prices.


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 21 October 2018.  Original article.


An update on the US rate rise

 


Although we’ve seen declines on Wall Street this week, there’s still strong growth in the US market. The most recent rate hike in the US may have investors concerned that the Fed could threaten markets with even more aggressive hikes.

But I don’t think that is likely; I expect the Fed will continue raising interest rates at a gradual pace.

The latest 25 basis point rise takes the US key central bank interest rate to a target range of 2% to 2.25%. That’s the 8th rise in this cycle which started back in March 2015, and the Fed’s rate hikes have been coming every three months.

What is certain is that there are more rate rises to go. The Fed has indicated it wants monetary policy settings to be ‘neutral’. Neutral means interest rates are neither stimulating or restraining growth.

The Fed doesn’t seem to know precisely where neutral is, but it is likely to be somewhere near 3%. That means they will keep raising rates every three months until we get around that neutral zone. So we’re looking at another hike in December and one again in March next year.

Strong US economic data, however, has some fretting that rates will rise more quickly. There is no doubt the US economy is performing well. August employment growth was revised up by 69,000 jobs, taking it to a very strong 270,000 jobs, and unemployment fell to a 48 year low of 3.7%.

But at this stage I don’t see the Fed accelerating the pace of tightening because, while inflation pressures in the US have built up, they are not intense.

Yes unemployment has fallen, but wages growth has slipped back to 2.8% year-on-year from 2.9% and is still relatively benign. Indeed, wages growth remains in a gradual rising trend, which is consistent with the US Federal Reserve continuing to raise rates every three months.

Wages growth is still a long way from the 4%-plus growth rate that helped drive the tight US monetary policy which preceded the last three US recessions.

Overall, the Fed has got inflation around its 2% target so there is no need to get too aggressive with rate rises. It’s really just about returning policy to a neutral zone.

At some point, perhaps in late 2019, more likely 2020, rates will go above neutral and that might cause a downturn in the US economy. But it’s still a fair way off.

So in the short term, the US economy is in good shape; growth is very strong, but inflation is relatively benign and around target. That keeps the Fed raising interest rates at a gradual pace.


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 12 October 2018.  Original article.


Outlook for the Australian economy


 


Investors might have noted some recent positives in the Australian economy. June quarter GDP growth of 3.4% was above potential and its fastest rate since 2012.

We have also seen pretty good jobs numbers, with the unemployment rate trending down and sitting at a six-year low of 5.3%.

And job ads, job vacancies and employment surveys have also been solid. (While job vacancies growth slowed to 0.6% in the three months to August, vacancies are up 16.5% for the year and remain high.) That will probably prevent a rise in the unemployment rate.

Underemployment

But investors must put those positives in context when assessing their impact on the Reserve Bank’s likely next move for interest rates.

Firstly, while an unemployment rate of 5.3% isn’t bad, Australia is still suffering from a very high level of underemployment. If you add underemployment (currently at 8.1%) to unemployment, our total labour market underutilisation is running at around 13.4%.

That is not only historically high for Australia, but it is very high compared with the US, which is running at around 7.4%. We still have a lot of slack in our labour market.

Falling house prices

The second point to make is that the RBA has another problem: uncertain consumer spending largely due to falling house prices in Sydney and Melbourne. In September, capital city house prices, led by Sydney and Melbourne, fell again, down 0.6%. That took the year on year fall to 3.7%, the biggest since 2012.

We believe more falls in Sydney and Melbourne are likely in the next two years because of factors such as tighter lending standards and rising supply.

House prices in those cities have been falling now for a year, and that drags on consumer spending because people feel less wealthy.

The chance of a rate cut

The labour market slack and falling house prices mean I find it hard to see the RBA raising interest rates. We do have a rate hike pencilled in some time in 2020. But there will certainly be no rate rise in the next three months to the end of the year.

Indeed, there is a small risk that at some time in 2019, the RBA may have to cut interest rates again. This is not our base case. But we can’t rule out the risk that rates might have to fall a bit further if weakness in the housing sector feeds through to the broader economy and threatens inflation on the downside.

So while we believe rates are on hold for some time yet, well out to 2020, we can’t rule out another rate cut from the RBA if the falls in house prices intensify.


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 5 October 2018.  Original article.



How is the Kiwi dollar faring?


Investors have been watching the Australian dollar weaken since January, but they may not be aware that the currency of our near neighbour New Zealand has also been under pressure, with further weakening likely.

The New Zealand dollar has fallen as the Fed continues to raise rates in the US and the Reserve Bank of New Zealand (RBNZ) announced an unexpectedly dovish policy stance.

In its August monetary statement, the RBNZ kept its official interest rate on hold at 1.75%. The RBNZ said that while it expects to keep the official cash rate at 1.75% through 2019 and into 2020 – longer than it projected in its May statement – the direction of its next rate move “could be up or down”.

Investors had been expecting interest rates to rise, albeit gradually, and were caught off guard by the statement, triggering a sell-off in the NZ dollar.

Investors have linked the dovish comments to worsening business confidence. The ANZ Business Outlook Index slumped in August to its lowest level since April 2008 when New Zealand was in recession. The RBNZ also downgraded forecast GDP growth in 2019 from 3.1% to 2.6%, although recently released June quarter GDP growth was stronger than expected.

Subsequently, some investors are now concerned the RBNZ’s next move might be a rate cut.

On the one hand, New Zealand’s terms of trade (the ratio of export prices to import prices) is reasonably supportive of the NZ dollar. But on the other hand, there is this talk the RBNZ may cut interest rates.

Our view is the RBNZ is on hold; but there is downside risk of a rate cut, as there is in Australia with our Reserve Bank, so we wouldn’t be surprised if we saw a bit more downside in the value of the NZ dollar against the US dollar.

What does that mean for the performance of the NZ dollar against the Australian dollar?

We believe Australia’s exchange rate with the New Zealand dollar (AUD/NZD) will go sideways. Both countries face similar risks. And both central banks have a bias towards holding interest rates steady.

In the US, however, the Fed is raising rates which makes it a much more attractive place to park money than in Australia or New Zealand.

This means that we may see further weakening of both New Zealand and Australia’s currencies against the US dollar.


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 28 September 2018.  Original article.



What’s happening in the Chinese economy at the moment?

 


Investors should keep a watching brief on the Chinese economy, AMP Capital Investment Strategist, Angus Nicholson says.

He warns that key risks include weak credit growth, the US trade war and signs of slowing global growth.

“Investors should keep a bit of an eye on China this year. China has been a growing risk factor in many investors’ perceptions at the moment.”

But Nicholson says a China collapse is unlikely with the Government rolling out monetary and fiscal stimulus that should continue to stimulate growth.

“The Government has begun to ease monetary policy and they’re looking to further stimulate fiscal policies and that should support growth in the near term,” he adds. “So the threat of a China collapse is still a fairly low probability event.”

In more detail, he explains that one of the challenges facing the Chinese economy is slowing credit and money supply growth associated with the crackdown on off-balance sheet lending which has impacted credit availability for riskier small to medium enterprises (SMEs) more so than larger and safer state-owned corporate borrowers.

That crackdown on off-balance sheet lending has coincided with the Trump administrations’ decision to slap tariffs on some Chinese imports, as well as a noticeable slowdown in global growth, with slightly weaker purchasing manager and manufacturing index numbers coming out for July.

The concerns have helped caused a sell-off in Chinese equities.

The Chinese Government has been responding to the challenges by moving to stimulate its economy as evidenced by the central bank, the PBOC (People’s Bank of China), loosening monetary policy. “The Chinese Government is getting even more concerned and looking to create some more fiscal stimulus measures as well,” Nicholson adds.

AMP Capital is also closely monitoring how the trade tensions with the US develop and how the Chinese currency responds.

Nicholson says investors should be watching for a dramatic weakening of the currency or potentially much larger outflows from China’s capital account. “There is a bit of a concern that there could be a run on the currency. At the moment we deem this quite unlikely, but that’s certainly one of the risk factors investors are pointing to.”

The renminbi has already weakened 10% against the $US so far this year and 6% against a trade weighted basket of its most traded countries.

Nicholson says that has triggered concerns of a repeat of 2015/16 when China devalued its currency and caused a global sell-off in equity markets. But that, too, is unlikely as the Chinese Government has intervened much less this time to help its currency and the concerns that worsened the 2015/16 sell off are absent.

But Nicholson says the weakening Chinese currency does play to the wider trade dispute with the US. He notes that the US initially proposed 10% tariffs on around $US200 billion of Chinese goods, but subsequently upped this to 25% because the weakening of the renminbi almost negated the effect of the trade tariffs.

“This [currency depreciation] further creates ongoing tension with the US,” he says. “The US is keen to stop trade deficits. The problem is if the Chinese currency keeps depreciating the tariffs the US puts on them are largely negated.”

“The big unknown is how much pressure the Trump administration could put on China with regards to the tariff dispute, and that could really impact how effective some of the Chinese easing policies are.”

In the present scenario Nicholson says it is worth keeping an eye on how China’s growth plays out in the second half of the year. But he is confident that monetary and fiscal stimulus will successfully offset the current risks.

“We think that should continue to support China’s growth going forward, for the rest of the year and into next year.”


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 28 September 2018.  Original article.


 

The latest on Brexit and Italy


 


Europe has once again become a source of concern for investors this year, with Brexit and Italy’s new populist government the latest causes of volatility amid fears they could threaten the European Union.

But investors need to put those concerns around Italy and Brexit in context.

In 2016, a non-compulsory referendum of the British people voted in favour of leaving the EU. Britain is now in the process of exiting, but they are yet to finalise the nature of the exit.

They’ve spent the last two years debating how they want to leave and what sort of post-Brexit model they want.

The latest plan is to have a free market in the trading of goods between Britain and Europe – but not a free market for people, services and capital.

The Europeans don’t like that idea because they regard all four freedoms as sacrosanct. It’s unlikely they will let the current British Government have all of what they want – the free trade of goods – but not the other things.

Brexit is creating tension and uncertainty within Europe. And the clock is ticking. Britain must resolve the issue by early next year or it may be locked out of the EU altogether, with a so-called ‘no deal’ Brexit.

However, I don’t believe Brexit will affect the rest of the Eurozone. Europeans voted in a number of elections last year, and while they weren’t referendums on the EU or membership of the Euro, overall they elected parties that were in favour of staying in both. Subsequently I don’t forsee any major threats to the Euro.

But one country where populists did perform well was Italy; the populist left-leaning Five Star Movement (5SM) and populist far-right Northern League (NL) were the big winners in the March elections, but this was possibly because both parties backed away from their previous anti-Euro policies.

Both parties are now in a coalition government running Italy and they campaigned on undertaking fiscal stimulus and relaxing the EU rules around budget deficits. That would create tension with the rest of Europe and has been a source of concern for investors.

Yet Italy’s Deputy Prime Minister, Matteo Salvini, recently said his country will, in fact, honour those EU rules.

So maybe the risks around that are starting to settle down a little bit.

Italy is the country that investors should keep an eye on when it comes to the Eurozone because while a majority of its population support membership – at around 60% – it’s less than the 75% or so seen in the rest of the Eurozone countries. However, despite this Italy will likely stay in the Eurozone simply because leaving it will be too hard and involve a sharp fall in the value of a new Italian lira. And more Italians do favour staying rather than leaving.

There could, however, be a bit of volatility triggered by political tension between the EU and the new populist government of Italy.

Ultimately, however, while Britain will probably leave the EU, I believe the more significant (from a financial point of view) Eurozone will stay together. And at the end the of the day I don’t see a major ruction across Europe in terms of threats to economic growth.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 21 September 2018.  Original article.



Are the troubles in Turkey easing?


 


Investors may be eyeing off value in emerging markets after the recent sell-off triggered by concerns about the Turkish economy.

Emerging market (EM) shares in local currency terms are down around 14% from their January high, and emerging market currencies are down 16% since their February high.

Emerging markets are now trading on a forward PE of around 11 times, making them quite cheap, as are their currencies.

But the troubles in Turkey, which have prompted its equity markets and currencies to tumble, are likely to continue as the underlying problems in its economy persist.

Turkey is experiencing very high rates of inflation and its central bank is probably going to have to raise rates further to combat that. So, the volatility and uncertainty around Turkey will continue.

Contagion

The real problem is the contagion effect those concerns have on other emerging market countries. As we have seen in the past, when one emerging market gets into trouble, investors look around for others that might be in trouble too.

The concerns around Turkey have already spread to Argentina; investors are worried the problems will also spread to Brazil and other emerging markets, which is weighing on their shares and currencies.

Foreign investors are happy to put money into emerging markets during good times but they’re now fretting those countries may not be able to service their loans, particularly if they have borrowed in $US.

The US is raising rates, which continues to put upward pressure on the $US, making it more expensive to service loans in that currency.
Investors have other concerns too around emerging countries’ vulnerability to the threat to global trade, and uncertainty around slowing growth in the Chinese economy.

Good value

When you throw in worries about specific countries like Turkey it creates ongoing issues around emerging markets. This means that worries about emerging markets will probably continue for a little while yet.

There is good value in emerging markets if you take a longer-term, say a five-year, view. But investors need to be aware that we may see some more downside in the short term before we ultimately bottom out in these markets.

From a historical perspective, the declines we are currently seeing in emerging markets are mild. They crashed 27% in 2015-16 and they could fall further now if the $US continues to rise, making debt servicing harder in the emerging world.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 14 September 2018.  Original article.

 

What’s next for house prices?


The bottom line is we see more downside in Australian house prices. That is, of course, a broad generalisation and it depends on where you live.

Australian house prices have fallen for ten consecutive months driven mainly by declines in Sydney and Melbourne, which are coming off the back of a huge boom.

Nationwide, there is likely more downside to go with expectations of another 5% decline. We’ve seen a tightening in bank lending standards, an increase in the supply of units and poor affordability levels.

We’re also seeing investors and buyers saying, ‘well, I was trying to get in there for fear of missing out, now there’s no hurry because prices are coming down’.

All of those things are weighing on prices. At the same time some of the banks have raised mortgage interest rates; and, of course, there is speculation about a possible change of government to Labor, and talk of its plans to tighten or restrict negative gearing and the capital gains tax discount

But further property weakness will be dominated by Sydney and Melbourne.

Sydney property prices are up 70% over the five years to their peak last year while Melbourne property prices are up almost 60%.

Sydney and Melbourne have seen price declines of around 3% to 6% from those peaks and there is probably another 10% more to go, spread out over the next couple of years.

But if you’re in other cities around Australia it’s a somewhat different story because those markets didn’t have the boom. There’s still value to be had there in rental yields, which are still reasonably attractive.

Perth and Darwin have just come off the back of a huge bust, so, if anything, they’re getting close to the bottom. We’re probably going to see moderate growth over the next couple of years.

Other cities – Canberra, Adelaide, Brisbane and Hobart – again we see moderate growth in those cities.

So, while we are likely to see ongoing weakness at a national level over the next couple of years, it is clearly a tale of two nations, with the post-boom Sydney and Melbourne markets set to weaken, and other markets to post some growth.


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 7 September 2018.  Original article.


US reporting season and the tech sector

 


AMP Capital chief economist Shane Oliver says revenue disappointments and slowing user growth at technology giants Facebook and Twitter is a warning that the US tech sector could at some stage underperform – or even suffer a serious correction.

“What those disappointments tell us is there is a limit to the take up of social media,” he says. “At some point it will start to slow down.”

Oliver says the US reporting season for the June quarter was “pretty good”. Some 83% of companies had exceeded expectations regarding profits and more than 70% exceeded revenue expectations.

“Overall profit growth is running around 27% on a year ago,” Oliver says. “Even if you exclude the impact of the US corporate tax cuts, profit growth is running around 15%.”

But high-profile disappointments have focused attention on the technology sector.

Oliver says the sector has performed well overall, but social media giants Facebook and Twitter disappointed the market. Facebook’s shares crashed almost 20%, wiping out $US120 billion of value – the biggest one-day drop in US stock market history – after it missed revenue expectations and reported slowing user growth.

Twitter shares also slumped 15% after its user growth came in lower than market expectations.

“Their growth in number of users seems to be slowing down,” Oliver says. “That seems to be a bit of a concern.”

“To some degree that’s inevitable; at some point you reach saturation regarding some of these social media sites. I guess the debate is always when that’s going to occur and what impact that has on revenue growth.”

Oliver says the disappointments highlight that there is a risk of correction after the tech sector’s strong gains. He says a pullback is unlikely to be as severe as the tech crash, which began in 2000 and ended the tech bubble at the time.

“It will be nothing like what we saw at the height of the tech boom back in 2000 when the Nasdaq got to a PE of around 100 times; today we’re less than 30 times, so not nearly as overvalued as back then.”

“But obviously there is a bit of risk that at some point out there the tech sector will lose its leadership of the US share market and go through a period of underperformance, if not a bit of a decent correction.”


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 24 August 2018.  Original article.


Is the Australian dollar headed for more downside?

 


AMP Capital chief economist Shane Oliver says he expects the Australian dollar ($A) to weaken further – making unhedged offshore investments more attractive — as interest rates continue to rise in the US. However solid commodity prices should put a floor under falls.

So far this year the $A has fallen from around US$0.80 to around US$0.72. “I think the likelihood is it’s got more downside,” Oliver says.

He notes that there are two conflicting processes at work.

The “dominant” force at the moment is the US Central Bank, the Federal Reserve, which has been steadily raising interest rates – 25 basis points every three months. The next interest rate decision is in September. But at the same time Australia’s central bank, the Reserve Bank (RBA), has kept rates on hold for several years and is likely to remain doing so for some time to come.

“The result is that the interest rate differential between the US and Australia has gone strongly in favour of the US dollar and is attracting money into the US economy,” Oliver says. “Cash is being parked there as opposed to be parked in Australia. So that’s a big negative for the $A.”

The interest rate differential is the difference between official interest rates in countries. The RBA’s official cash rate sits at 1.5%. The current federal funds rate target is 1.75% to 2%.

“We think that [interest rate differential] has got a lot further to go because we expect the Fed will continue those rate hikes going into 2019 at least. But the RBA is leaving interest rates on hold through 2019, at least. So that interest rate differential will get wider, pushing the $A down probably to around US$0.70.”

Oliver says the other force impacting the $A is commodity prices. He notes that bulk commodity prices are solid with iron ore around US$65-70 a tonne recently and coal prices are strong. “That’s providing a degree of support for the $A.”

Oliver says that these strong commodity prices are probably going to provide a “bit of a floor” of around US$0.68 to US$0.69 “rather than pushing it [the $A] higher.”

But he says there are other risks. “If this trade war [between the US and China] gets worse, then that could turn into a negative as commodity prices come under pressure.” Similarly, the turmoil in some emerging markets led by Turkey is also creating uncertainty for global growth and adding to downwards pressure on the $A.

“The bottom line is, investors should expect more downside for the $A. That enhances the value of offshore investments which are unhedged. But I don’t see a crash in the $A unless commodity prices take a big hit.”

As the recent fall in the $A on the back of the Turkish crisis highlights, being short the Australian dollar and long (unhedged) foreign exchange (particularly the $US and Yen) could work in certain cases as a hedge against threats to the global outlook.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 20 August 2018.  Original article.



The impact of higher oil prices


Australians can expect to pay more for petrol at the bowser as oil prices move higher in the short-term. Yet the price rises won’t force the Reserve Bank to hike rates as a significant acceleration in inflation is unlikely.

Do I see the oil price continuing to surge higher? In the short term, yes, it could go a bit higher as global demand remains strong.

The cost of oil has risen sharply over the last year, with the price per barrel surging from $US45 to around $US70. The price rise paused on speculation that OPEC will increase production. But the increases were less than expected and the oil rally resumed.

There are many factors driving higher oil prices. Global demand is strong because the global economy is strong.

That demand has meant the world economy has burnt through excess supply and stock piles have declined.
OPEC cut back production a year or so ago, which further restricted supply (and now they’re increasing it again as demand picks up).

Some oil producers, including Libya, Venezuela and Canada, have had their supply disrupted. Iran’s supply to world markets is also under a cloud with the US seeking to reimpose sanctions.

There is a risk we’re going to see more upside with oil prices rising further.

That means Australian consumers will pay more at the bowser for petrol. Over the last year the typical household has had to spend $8 a week more on petrol.

There are two impacts: higher petrol prices but also less spending power. Higher oil prices are going to be a bit of a drag on consumer spending going forward.

That weaker consumer spending will balance the inflationary effects of higher petrol prices. Ultimately, I don’t see a huge flow-on to inflation [from higher oil prices], and I don’t see the RBA jumping in there and raising interest rates.

Oil price rises will ultimately be capped because higher prices should accelerate a shift to alternatives, and supply will increase as producers ramp up production to benefit from higher profits. As a result, we don’t expect to see the oil price pushing up to the levels we saw last decade when it got to around $US140 per barrel.

Still, at the end of the day higher oil prices are a drag on growth, particularly for Australian consumers, and that is something worth keeping an eye on.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 16 August 2018.  Original article.


Predictions for reporting season

AMP Capital’s chief economist Shane Oliver says listed Australian companies are expected to produce solid overall profit growth in the upcoming reporting season, which will continue to underpin the stock market.

But the results will be mixed, with banks, telcos and retailers struggling, and Australia’s profit growth will continue to lag the stellar profit growth of US companies.

Oliver says he is looking for 9 per cent overall profit growth from Australia’s listed companies during reporting season, which relates to the first half of 2018 but more broadly the 2017/2018 financial year.

“That’s pretty good,” he says. “Bear in mind, though, that’s a little bit skewed to resources.

Oliver says resources profit growth for the period should be around 25%. “That’s a bit slower than a year ago when it was running around 130%. But you’ve still got pretty good commodity prices, particularly for the bulks like iron ore, coal, also energy, and of course you’ve still got good volume growth. So, resources are still going pretty well, but quite a bit slower than a year ago.”

Excluding resources, Oliver says the broader market should report profit growth of around 5%. “Overall it’s reasonably ok. But some sectors, particularly banks and some of the retailers still struggling with intense price competition, might struggle a little bit.

Telcos are another area where we expect some disappointment.

“On the flip side we’re probably going to see some pretty good results out of insurers, healthcare stocks, building materials, gaming companies and utilities.”

Oliver says that overall profit growth of 9% “keeps the Australian share market well supported, particularly as we go into the current financial year”.

“But obviously it’s nowhere near as strong as profit growth in the US, so the relative underperformance of the Australian share market we’ve seen will probably continue for a little while yet.”

US companies have reported strong profit growth for the June quarter. With more than 80% of companies having handed down their results, overall profits are up around 25% to 26% on the period a year earlier.

Some 85% of US corporate earnings have surprised on the upside; and around 72% of revenues surprised on the upside. A large part of profit growth has been driven by tax cuts, but excluding that, profits still rose a strong 15 per cent.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 12 August 2018.  Original article.

 

Is keeping rates so low “unnatural”?

 

AMP Capital Chief Economist Shane Oliver says investors must get used to ongoing low returns on bank deposits, with the Reserve Bank (RBA) unlikely to raise official rates for some time despite calls for action.

“We are of the view that rates will be on hold at least out to 2020,” he says. “The next move probably will be up, but I can’t rule out the next move being down.”

The RBA last changed interest rates back in August 2016 when it cut rates to a record low of 1.5 per cent. Following its meeting on July 3, the RBA has now held rates steady for a consecutive 21 meetings (accounting for the fact the RBA doesn’t meet in January, a 23-month period), a record length of inaction.

“When you see that record period of rates on hold people start to get agitated,” Oliver says.

Some people are now arguing that the RBA keeping rates so low for so long is unnatural, Oliver notes. They say the central bank should start raising rates to prepare Australian households for the eventuality that at some point higher global interest rates will flow through to higher Australian interest rates.

Oliver says all arguments are worth debating. “But I think it would be a major policy mistake for the RBA to prematurely raise interest rates just because the US has been raising rates,” he says.

The US economy is at a very different point in the cycle to the Australian economy, Oliver says. In the US, unemployment is at its lowest level since the late 1960s. “We’ve got relatively high unemployment; and relatively high underemployment. If you add the two together, it’s up around 14 per cent,” he says.

“In that environment, it’s very very hard to see wages growth picking up much in contrast to the US, and it is likely inflation [in Australia] is going to remain pretty low.”

Oliver adds that while US home prices are rising, house prices in Australia, particularly in Sydney and Melbourne, are falling. “We’ve got a very different environment in Australia compared to what you’re seeing in the US,” he says. “This is not the time to be raising interest rates just because the US might be doing so. We’re at different points in the cycle. Bottom line, we’re going to be on hold for some time to come.”

Oliver says that investors, particularly retirees relying on income from deposits, will need to accept we will remain in a low-rate environment for some time. “You’ve got to get used to ongoing low interest rates and ongoing low returns from bank deposits. That is the reality we’re in. I think in this environment it would be the wrong thing to raise interest rates prematurely.”


AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 2 August 2018.  Original article.

 


What is a yield curve and why is it flattening?

AMP Capital Chief Economist Shane Oliver says investors should keep a watching brief on a flattening yield curve, but it is not yet signalling a sharp economic slowdown or recession in the US.



“It’s certainly something worth keeping an eye on,” he says. “But I don’t think we’re at that point yet where this is indicating a recession is around the corner. We’re a long way from that point.”

There has been growing alarm that a flattening yield curve, particularly in the US, is presaging a slowdown in global growth.

The yield curve is the gap between long-term bond yields (usually 10-year bond rates) and short-term interest rates (usually the official short-term rate and sometimes the 2-year bond yield).

Under benign economic conditions, the yield curve typically slopes upward from left to right with short-term rates much lower than long-term yields.

But the US Federal Reserve has been raising official rates, which has increased the Fed Funds rate and 2-year bond yields. At the same time, long-term bond yields have been stable or falling slightly.

“Consequently, the gap between the two – the long long-term yield and short yield – has narrowed a little bit and people call that a flattening in the yield curve,” Oliver says. “We have seen flattening in yield curve led by the US mainly.”

Oliver says there are reasons a flattening yield curve should worry investors. “Obviously it signals tightening of monetary policy as short-term interest rates go up relative to long-term interest rates.”

But the bigger concern is that when the yield curve goes negative – with short-term yields higher than long-term yields (the yield curve sloping down from left to right) – the move is seen as a possible indicator of an economic downturn.

“Historically when it’s gone negative in the US, some of the time it leads to slower economic growth and sometimes a recession,” Oliver says.

Oliver says a negative yield curve would be a definite worry for investors. “Are we concerned? Yes. If it goes negative, then that would be a big concern; it would suggest that maybe there is a recession around the corner.”

He notes that in the past the yield curve flattening has given false signals. “Sometimes it’s gone negative and we don’t get a recession,” he says.

The lag between a yield curve becoming negative and recession can also be a very long time. “You can go negative, but it can take a while before you get that recession coming through.”

But, most importantly, the yield curve hasn’t gone negative and there is no cause for alarm just yet. “At this stage it’s still not pointing to a recession,” he says.

Oliver says the flattening so far could represent a readjustment after a period of record-low interest rates. “You can say we’ve gone back to something approaching what is more normal because we had that environment with zero interest rates. They [official interest rates] have now come up so we’re going back to something a bit more normal.”



AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 29 July 2018.  Original article.


The next rate move may be down

The next interest rate change may be down rather than up, as the Reserve Bank of Australia grapples with falling property prices and low inflation according to AMP Capital Head of Investment Strategy and Chief Economist, Shane Oliver.

Oliver’s view on the where the RBA may go with rates is in sharp contrast to the US where the Federal Reserve has been raising rates since the end of 2015 and is expected to continue this trajectory this year.

“There is some risk the Reserve Bank might have to cut interest rates again,” says Oliver. “We are seeing home prices come off again in Sydney and Melbourne and obviously that will have a negative wealth effect.”

The two cities combined account for about 40 per cent of the Australia by population. That factor combined with the banking industry measures to tighten up lending standards around borrowers’ incomes and expenses may continue to impact property prices.

“If that gathers pace, and there is a risk there with the tightening of bank lending standards, then that might force the Reserve Bank’s hand into actually cutting again, because the tightening in lending standards is a defacto monetary tightening,” Oliver says.

The RBA on June 5 left rates on hold at 1.5 per cent for the twentieth meeting in a row. The last time it changed rates was a 25 basis point cut in August 2016.

In his monthly statement RBA Governor Philip Lowe noted housing credit growth had slowed in the past year, “especially to investors” and commented on the Australian Prudential Regulation Authority’s (APRA) measures to stem “the build-up of risk in household balance sheets.”

While a near-term rate cut is not the AMP Capital base case, Oliver describes it as “a risk worth keeping an eye on.”

“We have increased evidence that the housing cycle is starting to turn down, and this will lead to a loss of wealth, which has a negative impact on consumer spending at a time when wages growth is still very weak and inflation is very low.”

The prospect of a rate cut would be welcome news for many indebted home owners, and it may also be good for local bond investors by helping offset upwards pressure on bond yields coming from global sources.

“Having rates on hold for an extended period, with some risk of a rate cut, might keep Australian government bond yields relatively low compared to what we are seeing internationally,” says Oliver. “This in turn will help minimize the near-term potential for capital losses on Australian bonds.”

There is upwards pressure on bond yields in the US, but in Australia that upwards pressure is somewhat offset by the RBA keeping interest rates on hold. Oliver predicts that will help keep Australian bond yields comparatively lower.

In the US, the Fed lowered its benchmark rate to near zero after the global financial crisis began in 2008. It then began raising rates two and a half years ago when the economy started to strengthen and has now increased the rate seven times. It’s expected to raise rates again next week.


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 12 June 2018.  Original article.



  

Investors win from commodities cashflow boom

Dermot Ryan, Portfolio Manager, Australian Equites, AMP Capital

Resource companies are enjoying a resurgence in profits based on higher commodity prices and lower unit costs.

Now many of you might think, “well we’ve had booms before.” The big difference this time is that there is still a strong focus on reducing the price of production, even as prices for raw commodities continues to increase.

In the mining boom pre-Global Financial Crisis (GFC) we saw a sharp run up in commodity prices, and companies scrambling over one another to get mines built as quick as possible – irrespective of costs. This led to greenfield expansion and large amounts of money being spent on labour, machinery and procurement and many of these didn’t get a good cost outcome.

Now, I think we are in one of the best periods for franked returns in the mining industry since the that last boom.

It is refreshing to see, in so many cases, mining companies returning money to investors through dividends and buybacks, rather than just being on a mad rush for growth.

Economic Growth

Global economic growth is running hot. In the US, business confidence and employment growth have been rising, and in much of Europe the recovery is underway.

From China, the world’s biggest commodities consumer, we are seeing a lot of demand for seaborne high-grade commodities, and they are also looking to improve their air quality and the environment, which means there may well be a substitution of lower grade Chinese raw materials for higher grade imports.

I think there are interesting opportunities across areas such as energy, iron ore, copper, and also specifically commodities related to electric vehicles. Lithium producers are the biggest winners from this, and there is also strong demand for cobalt and graphite.

As we go through this point in the cycle where demand is still high and interest rates haven’t yet risen there is an opportunity for companies that have de-geared their balance sheets to use some of that capital to invest back into their mines.

Mining expansion rarely comes cheap and the Reserve Bank of Australia has kept interest rates on hold for 21 months now. AMP Capital does not expect a rate rise until 2020. However, should the US Federal reserve raise rates quickly there could be risks for commodity prices and Asia demand.

Mining stock values

Valuations are still quite reasonable in the mining space as well because people want to see how sustainable commodity prices are at this level. It wasn’t that long ago after all, that larger companies found themselves too heavily in debt and struggling to refinance during the GFC.

Revenue & Earnings for the Australian Metals and Mining industry group


Forecast estimates only for 2018 and 2019.  Actual future results could differ materially from any forecasts, estimates, or opinions.
Source: Factset Industry Consensus Estimates

The winners are those who can add incremental production to existing plants and reduce their unit costs per commodity and come down the cost curve. This particularly favors companies with expandable tier one assets.

Now, we seem to be in a more considered period where most moving factors point towards better returns at any given commodity prices. This is really encouraging for Australian investors.

Companies too are much more focused on capital allocation and returning cash to shareholders. These periods of high dividends in deeply cyclical sectors like mining don’t last forever but can be enjoyed by investors in the current market.

AMP Capital's Market Watch


 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 12 June 2018.  Original article.  



What is happening in the property market?

Original Source: Produced by AMP  and published on 5 June 2018.  Original article.  

Winners and losers from the pre-election budget

Winners and losers from the pre-election budget

AMP Capital’s Senior Economist Diana Mousina gives a rundown of what you can expect from this year’s budget. View the video below.

 

Diana Mousina, Senior Economist, Multi Asset Group, AMP Capital
Our overall expectation for this year’s budget is that it will look and feel like a pre-election year budget. What that means is it will have plenty of good news for the household hip pocket.

The government has more cash to splash this year because the economy has been performing better than expected.

The labour market has been a lot stronger, which has brought in household taxes and company tax revenue has also been rising quite steadily, ahead of government projections.

Jobs growth is running at 3.0 per cent over the past year and tax revenue to February was some $4.8 billion dollars higher than forecast in December.

This means the government has additional money to enable it to cut household taxes, which will boost sentiment before the Federal election next year.

The government has been signalling for some time that personal income tax cuts are on the cards for households crunched by rising accommodation costs and stagnant wage growth.

The stronger than expected economy means it can also continue with its promise to get the budget back to surplus by 2021.

The major winners from this year’s budget are probably going to be households in the lower to middle income range of the spectrum, because that is likely to be where the government is going to target the largest tax cuts.

Larger companies are also expected to benefit because the government is likely to continue with its focus to cut the corporate tax rate from 30 to 25 per cent over the next few years.

Keep in mind that the government has already announced that small businesses will receive a tax cut in last year’s budget, so small businesses have already been positively impacted over the past year.

The group that is likely to benefit the least from the upcoming budget is higher income tax households, because it’s unlikely that they will receive a direct income tax cut. However, this group will be positively impacted if the Medicare surcharge is postponed.

The Medicare surcharge, due to begin on the 1st of July this year, had been forecast to raise $8.2 billion over the forward estimates and this money was going to be used to fund the national disability insurance scheme.

The surcharge of 0.5 per cent would have been shared among all Australians earning more than $21,655.

However, the Labor party last year said it would only support a Medicare surcharge for workers in the top two tax brackets – people earning more than $87,000.
Now that the Medicare surcharge seems likely to be postponed again, we should expect some kind of announcement about how the NDIS will be funded going forward, most likely from the better than expected fiscal results. We also expect other healthcare announcements.

We think that other key parts of the budget are going to be around more infrastructure spending. It’s likely there will be an announcement about a Melbourne Airport rail link and some other spending around Queensland as well.


AMP Capital Insights papers

 Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 27 April 2018.  Original article.  

 

How to keep ahead of technology disruption in real estate

 
In Sydney on Valentine’s Day 700 bunches of flowers were delivered from an unused car park floor in the CBD.If you want to make money in real estate, you need to understand why this seemingly banal titbit of information is important.Old asset classes are evolving into new asset classes – today’s car parks could be tomorrow’s logistics hubs. In fact, they might already be.Every day we pick up newspapers and see a new entrant in the technology business that is changing the way we do things. Whether it’s taxis, hotels, or the way we consume food; technology disruption is changing the way we live.Understanding where to be in the real-estate technology disruption era is important, particularly in a rising interest rate environment.When I analysed what made many of the big technology firms such as Google, Uber and Airbnb successful, I was able to boil it to down to three key ingredients for success: They are customer driven (bottom up), they unlock unproductive gaps in their respective markets, and they force their competitors to adopt their approach, creating a new norm.When you look at companies like Amazon, it realised moving goods efficiently meant it could create more value through the supply chain. The result has been billions of dollars in revenue for Amazon and many traditional retailers have failed.As investors in commercial real estate, understanding technology disruption can have value-added benefits for assets. It helps us manage those assets more efficiently, and it helps us measure the use of those assets more effectively.A good example of this is things like Beacon technology. The beacons use mobile devices to give people better connectivity to things around them, such as finding and paying for nearby carparks, reviewing and buying retail items, and tracking staff usage and timings at various locations in buildings.As we move it into an environment where income growth is going to be critical, with the likelihood the Reserve Bank of Australia will raise rates early next year, we want to ensure we are maximising the efficiency of the assets we own.Real estate is already grappling with the early stages of these changing conditions. A good example of this is the increasing demand for more flexible leasing arrangements in the office market.The cost of not being an early adaptor to these technology changes will be high. Landlords are already surrendering retail margins of up to 150% by leasing their spaces to companies that embrace flexible, technology-enabled space use.In the office sector, co-working or ‘third spaces’ are starting to take up large sections of the market. They provide customers with flexibility and community, enabling companies to scale quickly.The industrial sector is starting to undergo massive changes too. I believe the growing need for last-mile logistics close to urban locations will inspire vertical warehouses. These warehouses will be designed to enable multiple transport forms such as vans, cars, and bikes to move goods to customers faster.In the retail sector, tenancy mixes are transforming away from fashion and electronics towards ‘experiential’ offerings such as, food and beverage and cinemas. Social infrastructure such as childcare, medical and education services also becoming more common.These evolutions will be driven by technological change that’s already occurring in the sector. That means that there is value to be captured.As investors we need to ensure we are at the cutting edge of these changes to capture value through higher rental growth, and also higher asset value growth moving forward.Luke Dixon – Head of Real Estate Research, AMP Capital
AMP Capital's Market Watch

 

 

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.


Original Source: Produced by AMP Capital Ltd and published on 11 April 2018.  Original article.

How to play duration in fixed income at this stage of the cycle

At a time when duration is front of mind among fixed income investors, many could be overstating the probability the asset class is heading for outright negative returns, says Simon Warner, AMP Capital’s Head of Fixed Income.

Late in the investment cycle, as Central Banks move to tighten interest rates and inflation looms on the horizon, there’s never been a more critical time for fixed income investors to be thinking about the duration they own, Warner notes.

However, some of the positives associated with holding duration as a defence to offset more aggressive parts of an investment portfolio could be getting lost amid concerns about the risks, Warner reckons.

There’s currently no pressure on the Reserve Bank of Australia to raise rates aggressively and there’s very little inflationary pressure here despite moves by the Federal Reserve in the United States to raise rates, Warner notes.

“Although the US Fed will be raising rates, the RBA will continue to lag,” Warner says during an interview with AMP Capital TV, highlighting that investors in the local fixed income market might be overstating the risks of holding duration.

Warner’s team will be presenting research at the upcoming Fixed Income Forum assessing the outcome of negative outright return in the Australian fixed income market to be quite low.

Indeed, a lot of people are worried about rising interest rates and what that means for the value of their bond portfolios, assuming that interest rates are about to spike and inflation is about to emerge and that it’s a really dangerous time to own duration in fixed income, Warner outlines.

“At this stage of the cycle, duration is a hot topic and it’s something we talk to consultants and customers about all the time,” Warner says.

Holding duration at the end of an investment cycle can defend against the more aggressive parts of your portfolio, a characteristic that is sometimes forgotten in the conversation about risk, he notes.

Through the cycles

Clearly, we’re well into the latter stages of the investment cycle, Warner explains.

Phase one of the cycle is the recovery phase, where interest rates are kept very low and there’s an acceleration in economic activity.

Second phase is where everything is pretty stable, where there’s no pressure on interest rates to go up because inflation hasn’t emerged and growth is very solid.

The latter phase is when there’s more pressure on interest rates to go up and investors need to be more mindful of when the cycle might eventually end, Warner outlines.

Credit has different appeal and displays different characteristics during each of these phases, Warner says.

In the first phase, when credit spreads are quite wide because in the aftermath of a recession there are more defaults, investors can expect to “ride credit spreads in”, getting reasonable capital gains from spread compression.

In the middle phase of the cycle credit spreads aren’t very high but they still compensate you for default; at this point in the cycle you’re going to get low defaults because the economy is very strong.

“In the latter phase of the cycle you want to be careful about which names you’re exposed to and how much aggregate credit risk you have because the backward looking default experience is not going to be a good reflection of what real default risk will be looking forward,” Warner says.

“It’s at this [latter] stage you need to be looking forward because you need to be thinking about the end of the cycle,” he adds.

AMP Capital Insights papers


Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on 09 April 2018.  Original article.

 

What is a cryptocurrency and how does it work?

A cryptocurrency is a digital or virtual currency. Rather than existing in a physical form, like as coins and notes, it exists as a digital token1.

How does cryptocurrency work?

When you buy or receive cryptocurrency, you are given a digital key to the address of that currency. You can use this key to access, validate and approve transactions, as unlike a currency – which is regulated or controlled by a bank or government – cryptocurrency transactions are verified online by the people using it2.

Users verify every transaction, and the transactions are recorded on a digital public ledger called the blockchain. This prevents the same unit of the digital currency (or coin) from being spent twice by the same person3.

Cryptocurrencies are kept in a digital wallet and can be used to pay for actual goods and services. But because they’re not legal tender, they aren’t accepted everywhere. They’re most commonly used for online payments but can sometimes be used in stores, with the payment made using a mobile device4.


AMP Capital chief economist and head of investment strategy Shane Oliver explains in simple terms what a cryptocurrency actual is. Watch now and learn more with AMP.

How many cryptocurrencies are there?

The most well-known cryptocurrency is Bitcoin, but there are hundreds of different types. Some of the other well-known ones include Ethereum, Litecoin and Ripple.

How’s a cryptocurrency valued?

“The big debate around cryptocurrencies is how to value them. On the one hand, you could argue that it’s a revolution in the making and that this will be the way of all currencies in the future and, therefore, the sky’s the limit in terms of the price,” Shane says. “The counter argument is that it’s very hard to value an individual cryptocurrency like Bitcoin. It doesn’t spit out income or dividends, so it makes it very hard to value.”

Bitcoin reached a record high of almost $US 20,000 per coin in December 2017, but it’s value has since halved. Like other currencies, the value of a cryptocurrency is ultimately determined by supply and demand – or how much investors are willing to buy it and sell it for.

What are the risks and benefits associated with cryptocurrency?

Benefits

Shane says that, on the plus side, cryptocurrencies are a good medium of exchange and way of transacting money around the world very cheaply, bypassing the banks and doing so with very low transaction fees.

Risks

Aside from the risks associated with the fluctuating value of cryptocurrencies, there are also risks associated with the online nature of cryptocurrencies, such as the online platforms where they are bought and sold, or your digital wallet, being hacked. And due to their anonymous nature and the inability of governments to freeze funds, cryptocurrencies are also popular among criminals5.

For more information

As with any financial decision, it’s worth doing your research and ensuring you fully understand the risks involved before investing in any financial products.

For more information on investments, speak to your financial adviser or you can callus on 03 6343 1007.

1 ASIC Moneysmart, Cryptocurrencies.
2,3 Finder, What is cryptocurrency – and how can I use it?
4,5 ASIC Moneysmart, Cryptocurrencies.

 

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make 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 document 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 document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. © Copyright 2018 AMP Capital Investors Limited. All rights reserved.

Original Source: Produced by AMP Capital Ltd and published on AMP.com.au 09 April 2018.  Original article.