When will rates go up in the US? Globally the financial world remains focussed on Janet Yellen, Chair of the Board of Governors of the Federal Reserve (the Fed), as she continues to suggest that the Fed will increase interest rates in the US at some stage before the end of this year. As shown below in chart 4 the market is now pricing in a much higher expectation of rates rising in December 2015. If the US Fed does commence tightening in December we can expect to see the market volatility increase for a short period of time, before potentially moving into a more sustainable growth period. As shown in the table below in the past we have varying performance through tightening cycles, but on average it has been a positive share market with a sustainable climb in values. This table comes with the common disclaimer that past performance is not a good indicator of future performance, but while history may not repeat to often, it certain rhymes. Chart 1 – Market’s assumed probability of a move Table […]
We see a lot of investors who have a long term plan, someone in their mid 40s potentially needs an investment strategy to cover a period of 60 years (or more!), yet so often our decisions are based on what makes them happy today, typically believing that they have time to ‘deal with’ the consequences. This is compounded when the decisions being made are clouded with emotion, rationalism is quickly thrown out the door! Here is a good article titled “Short-Termism: it’s more contagious than the flu” – we can’t agree more.
At first glance the Future Generation Global Investment Company looks just like any other, run-of-the-mill international investment fund, however on close inspection this fund will provide some very tangible benefits for Australian and New Zealand “at risk” youth. All of the fund’s underlying managers have either donated their services for free or at significantly discounted rates in order to benefit this very worthwhile cause. The discounted fees are donated annually to charities working closely with Australian and New Zealand youth suffering mental health issues. The fund regulators and administrators have come on board as well , with both the Australian stock exchange and the funds Auditors heavily discounting their own fees to assist the cause. Read more here Disclaimer The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.
September has been an eventful month in the property market with New Zealand becoming the most overvalued property market in the world. As shown in the table below, when we take an average of the house price divided by average income, and the house price divided by the average rent, New Zealand property is currently trading at 62% above its historical averages, making it the most overpriced in the developed world. Chart 3 – Global Property Prices Source: OECD, Deutsche Bank Global Markets Research, monthly chart pack New Zealand Dairy Over the last month dairy prices have rallied globally, which will be a welcome relief to New Zealand farmers. In the last 2 auctions, being mid-August and early September the global dairy trade prices have risen by 15% and c11% respectively. This is still leaving the price per kg of milk solids low, and Fonterra has not revised their forecast from $3.85 ($4.25-$4.35 including dividends) To date farm land in New Zealand has continued to hold its historically high prices, and hence banks are still supportive of farmers drawing on […]
Globally the financial world remains focussed on Janet Yellen, Chair of the Board of Governors of the Federal Reserve (the Fed), as she continues to suggest that the Fed will increase interest rates in the US at some stage later this year. As shown below in chart 6 the market is now pricing in a much higher expectation of rates rising in December versus September this year. In chart 7, the Fed dot chart, which shows each US Federal Open Market Committee (FOMC) members views on where they feel interest rates are heading that are all predicting rates will increase into the end of 2015, and increase further over the next few years. The red line on chart 6 is the markets expectations of what will they are pricing in with regard to rate increases. As you will note there is a large difference between market and the average FOMC expectations, and as such we may see increased volatility in the fixed interest market if the committee do commence tightening in next month instead of the end of the year. […]
One of the more disturbing market issues we have been watching over the past 6 months has been the reduction in diversification benefits between bonds and shares, as well as across borders. Under normal market condition we expect bonds to do well when shares are falling and vice versa. As shown in the table below, as all asset prices around the world are all pushed higher in the hunt for yield, shares and bonds have started to become much more correlated, meaning they are moving in a similar cycle, and hence we can expect to see this correlation hold should the share and/or bond markets suffer losses. Similarly we expect to receive diversification benefits from investing in different countries, but as correlations between countries continue to climb we are losing this as well. This loss of correlation will potentially have a large impact on volatility in returns of more normal portfolios, but is something that we are managing within our clients’ portfolios via the use of high conviction, benchmark unaware managers, who can move to cash in times of high […]
Local economy GDP in New Zealand from 2014-2015 was a respectable 3.5%. The farming sector made up c25% of this total, with the Christchurch rebuild making up a further 17%. As dairy continues to languish, and the Christchurch rebuild continues to slow to ‘normalised’ building levels, we expect to see the wider New Zealand economy slowing. The only major sector still supporting growth in New Zealand has been the record immigration levels we have witnessed over the past 12 months. Immigration alone made up over 45% of New Zealand’s 2014-2015 GDP performance. The slowing in New Zealand’s economy has led to a large drop in business confidence, as shown in the chart below, which in turn is leading the market to price in further cuts in the New Zealand Official Cash Rate (OCR). At present the market is reasonably confident we will see another 0.25% reduction on the 10th September, with the potential for a further similar rate cut in December taking the OCR to 2.50%, a level last seen in January 2014. Chart 1 – ANZ Business Confidence Index […]
The month of August has proven to be one of the most volatile months in share markets in over 4 years with both the Dow Jones Industrial and S&P 500 both producing five days in the month where they both rose or fell by over 2%. The volatility has been blamed on the drop in the Shanghai Composite, but the reality is that this might only apply the Chinese and Emerging markets. For the volatility seen in the US the catalyst was thought to be the next stage of the “Taper Tantrum” as the markets now priced in the expectation of the US Federal Open Monetary Committee (the Fed) increasing interest rates for the first time in over 6.5 years. There is little doubt that the markets initially got nervous about the drop in the Shanghai Composite, which has now dropped by over 39% since its high in June 15. This massive increase in volatility has led investors to finally start to review the pricing of risk in the markets, and hence we saw the S&P500 also drop by around […]
The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.