Investment Update Video’s

Investment Update Video’s

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.