• Whilst it was an interesting month in investment markets, our thoughts and wishes must go to those impacted by the bushfires sweeping Australia. The scale of these fires is unprecedented and this has been brought closer to home with smoke covering Melbourne’s CBD in recent weeks. In an effort to provide any help possible, we have allocated our annual Client Christmas Gift budget to a number of worthy causes related to the bushfires.

 

  • Moving to investment markets, 2019 was one of the strongest years for investment returns since the GFC and the best in a decade. The ASX 200 increased over 18% in price terms, the US S&P 500, 28%, and the Nikkei 225, 18%. This came amid what seemed to be one of the most uncertain, negative and strained economic and social background in recent memory. The key reason behind the strength? A continuation of the trend since the GFC, low interest rates, quantitative easing and money printing, forcing investors into riskier assets for any hope of returns.

 

  • In terms of companies and sectors, it was Healthcare (43%), Information Technology (33%) and Consumer Discretionary (32%) that lead the way in Australia with two of the best performing companies, Fortescue Metals and Magellan Financial (+150% respectively). Global returns were also exceptional, with S&P 500 members, Apple (89%), NVIDIA (77%) and Mastercard (60%) among the top 50

 

  • December saw the UK’s Conservative Party take a resounding victory, re-electing Boris Johnson and his ‘Get Brexit Done’ mission and pushing back against the more extreme policies adopted by the Labour Party under Jeremy Corbyn. This effectively guarantees that Brexit will proceed, with the process of negotiating bilateral trade deals with countries including the US and Australia in full swing. The result was received positively by markets, as everything seems to be these days, removing another potential source of uncertainty and improving the hope of a global economy recovery.

 

  • In another positive sign for the global economy and sharemarkets (not to mention Trump’s re-election chances), the US and China have come to an agreement regarding a number of issues behind their trade war. The so-called ‘Phase One’ deal is expected to double US exports to China, initially from the struggling agricultural sector, and includes better intellectual property protections, curbing of technology transfer to Chinese firms and the expectation that China will further liberalize it’s financial markets. More recently, China’s central Government also released a further $115bn into the economy by once again reducing the capital ratio required of their banks.

 

  • APRA released its long-awaited super fund ‘Heat Map’ in December, attracting the ire of the strongest and weakest performers alike. On first view, it provides a useful reference tool particularly for those in super funds forced onto them by their employers. Looking more closely, however, some dangerous precedents have been set that are based around the near sole focus on historical performance and reported fees, with limited consideration given to transparency or flexibility. The worst performing included Maritime Super, BT Super for Life, and Energy Industry Super, with a number of corporate plans the worst in terms of fees, Pitcher’s, Goldman Sachs and Qantas. It was a busy month for the industry fund sector, with ASIC releasing a report on the quality of financial advice they provide, which concluded that 51% of funds provided non-compliant personal advice to members.

 

  • The Australian economy continues to struggle, with annual economic growth of just 1.7% and a quarterly increase of 0.4%. The performance was once again driven by the consumer, who is spending little on retail but more on services, dining and experiences, whilst falling Government spending was the reason behind the slowdown compared to the third quarter. Australia’s reliance on big business, including traditional banks and retailers, and our lack of innovation is becoming increasing obvious in our economic results. Interestingly, Australian tax on company income is the highest in the world as a portion of GDP. Australia is in desperate need of personal and corporate tax reform. In the US, unemployment fell to 3.5% during the quarter, the lowest level since 1969, with expectations this will have a flow on impact on wage inflation in 2020.

 

  • The Wattle Partner’s Investment Committee have for some time been undertaking due diligence on a climate change and ESG, or Environment, Social, Governance driven portfolio, which will be launched in 2020. Given our research, we were interested to hear Kenneth Hayne’s, famous for running the Financial Services Royal Commission, comments on the issue and where board and management focus should truly be.

 

  • We were intrigued to see GPIF, the Government Pension Investment Fund of Japan with over $1 trillion in assets under management, announce they would no longer be lending stock to short sellers. Lending stock is commonly used by industry funds, index funds and most large managers in order to add an additional level of return associated with the lending fee. GPIF indicated this was worth as much as $573m to them. This comes after a tumultuous year for many Australian companies from Blue Sky to Rural Funds and Wisetech Global.

 

  • “I’m no Skase” read the headline in the Australian Financial Review. The interviewee was the head of IPO Wealth and Mayfair Platinum, two investment opportunities that are being heavily (and expensively) marketed for their income offerings to yield starved Australian investors. The group’s approach appears to involve guaranteeing income returns to investors, on lending their capital to listed and unlisted companies, and hoping they perform sufficiently to be able to repay investor’s capital. In late 2019 they ran an extravagant launch after acquiring the derelict Dunk Island for $135m, of what we assumed is investors capital. If there is a sign of the market nearing high, this may be it.