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This week we look into the efficacy of the RBA raising interest rates to combat inflation and the subsequent impact on Australian property prices.
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This week we visit a topic that has been all the rage in 2022. Inflation. A word we perhaps hadn’t heard of in a couple of decades but has saturated every headline this year. As we write the ASX has given back around 14% from its peak in 2021 and the ASX Small Ordinaries down over 25%, officially entering a correction, and there seems to be no respite. With that context in mind, we take a step back as is always best in scenarios like this. This week we visit a topic that has been prominent in the headlines and one that has already got the new government on the backfoot. That is, the almost exorbitant rise in the price of utilities for the Australian consumer. More importantly for the investor, this has implications on inflation data (and monetary policy imperatives as a result). This week we look at a new government in Canberra and what, if any, are the implications for markets? Before proceeding into what is intrinsically a divisive topic, we’ll start with the conclusion, the answer is the implications are negligible. One of the greatest privileges of being in this business is the ability to talk to other investors on a daily basis and understand the pulse of the market. Right now the pulse seems to be confusion, not necessarily fear. Confusion breeds uncertainty which can paralyze an investor, sometimes leading to even worse results. So, what do we need to keep in mind when thinking about investing? Robert Swift takes some time to look at portfolio allocation in the context of the current global climate; now focussing on investing in the 'needs' and not 'wants'. This week we would like to look at the commodities market. This is a fascinating topic in a world coming out of a global pandemic, in the midst of a “Green Transition” and tackling exacerbated income inequalities. Toss into this mix the context of Russian sanctions. These sanctions matter and will have outsized impacts given that the country has a GDP about half that of the UK.
This week we continue with our examination of the news flow that has been rocking markets. We find it interesting that the headlines have inextricably linked the latest burst in inflation and energy prices squarely with the Russia-Ukraine escalation story. However, for those of you that have been long-term readers, you may remember that we had previously made the call for triple digit oil prices even before the Putin-made fiasco. The latest round of sanctions may have only sped up the process. Similarly, we made the call that higher inflation numbers were likely to be printed due to the fiscal impetus and the nature of the responses to Covid-19. Alongside this, we posited that central banks may find it more difficult to normalise policy than the markets may be expecting. This week we revisit the topic of Russia and the escalation in sanctions by the West. In particular we want to talk about the oft heard about but little known SWIFT system through which some of these sanctions are being imposed, the implications for broader markets and finally asset allocation within this context. This week we would like to offer our thoughts on certain megathemes that are impacting investment markets. Firstly, credit where it is due, this is a topic inspired by an oped in the AFR by James Thomson who summarises what he sees the recent bid by Cannon-Brookes for AGL represents. He categorizes the bid as representing three broad megathemes: 1) Energy Transition; 2) Private Capital; and 3) The Billionaire Activist. While we broadly agree with this categorisation, we would like to give our take on them and add in a final component that we feel is missing: the politicisation of everything. This week we again look to the headlines and look at an issue that has been front and centre for the markets, that of the Ukraine situation (perhaps a reprieve from the endless monetary policy commentary). Firstly, we begin with a rather macabre fact about the markets. Wars (we aren’t suggesting that this will be an all out conflict, at least in the traditional sense) aren’t necessarily bad for returns, think back to the First Gulf War. Looking through history, some of the best returns for equities investors in the first half of the last century were in fact the US’ entry into WWII (1942 - 1945) before entering into a period of what has been termed the postwar blues (1945-50). When was it they saw the next leg up? While it may be a touch oversimplified, entry into the Korean War. For the precious metals fans amongst you, gold hit all time highs over the course of the first year of the Soviet invasion of Afghanistan (1980). Growing up it was ingrained that two topics are rather taboo to discuss at the dinner table; the first being politics and the second money. So, with the hope that you’re not having dinner as you read, this week we discuss the former while touching on the latter. Perhaps a subject that you may not be expecting to read about in an investment newsletter. We begin the New Year with some interesting times in the market (has it ever been different?). Inflation Stateside is running at the highest pace in nearly four decades (i.e. 1981), the markets are expecting a tightening by major central banks, the PBOC being the outlier in going the other way in being increasingly accommodative, and Omicron continuing to gain traction. These are just a few of the headlines grabbing investors’ attention. So, with that in mind, let us go back to a basic question to begin the year, where to next? And more importantly where do we allocate? This week we seek to look at two elephants in the room, in answering these questions: monetary policy and geopolitics (which may very well present the next leftfield event). We have arrived at our final article of 2021 and, as usual, we thought it would be interesting to revisit our predictions for the past year and come up with a few more heading into 2022. Robert Swift takes a look at what happened in October in markets. This is an excerpt from Robert's Global High Conviction report for October 2021. This week we revisit the property market, specifically the potential/future for commercial office space. We are in the process of offering our most recent buy in the Adelaide CBD and throughout the process we have consistently received questions around the prudence and rationale behind taking exposure to the space. In particular, within the broader context of increased tendencies toward work-from-home and falling demand. So, we thought we would address that question rather briefly and why we feel that this question, though warranted, may in fact be somewhat overdone. Last week we looked at energy markets and made the case that the recent price action was a result of broader policy failures in speeding up the transition towards a net-zero world. This week we look at the green energy market to understand the incentives, opportunities and outcomes going forward. The irony may be that our bullish case for medium term oil prices may in fact perversely create a tailwind for the broader sector, despite what this may imply for growth prospects and inflation. This week we take a dive into energy markets, in particular the likely medium to long term outlook for the sector. We have previously written on the potential dislocations both in uranium spot prices (which we wrote off last year) and the potential upward trajectory in oil prices. The former has seemingly played out (though it may still be very much in its infancy) and the second seems to be playing out in real time with Brent futures trading at US$85.45 per barrel and WTI at US$83.73 per barrel. Many would also be aware of the sheer scale of disruptions in the UK and broader shortages of LNG in the Eurozone heading into winter. Even more recently, the headlines have been taken over by blackouts in China in the face of increased demand. Speaking to prospective and actual clients everyday, we get a fair sense and understanding as to the pulse of the market. Throughout those conversations, there are often common themes and questions. Among these, first, should we continue to own equities? Second question, where to allocate in a world of continued low interest rates? Thirdly, we keep hearing about inflation, but what does this actually mean? We now turn our attention to the global ‘Mobility Revolution’, set to be one of the defining investment thematics of the 21st century. An opportunity on par with the introduction of the World Wide Web in the 90s and the rise of mass production in the early 20th century. In doing so a key focus will be on the economics of adoption, the likely winners (both geographically and company wise) as well as, taking a normative stance within the broader context of policy intervention. Robert Swift takes a look at the current situation in China, examining government intervention and the moral issue of investing in China in particular. Our friends at Merricks Capital, an allocation in the TAMIM Credit portfolio, take a look at changing shopping and consumption habits in the wake of COVID-19. An important consideration for anyone with exposure, equities or otherwise, to these sectors. Ahead of his webinar next week (register here), Robert Swift takes a brief look at the state of the world and what it means for the investors out there. Robert Swift takes a look at the current situation around inflation and looks at how we can invest to maintain our spending power in real terms. A must read for those now receiving next to nothing for their bonds and fixed income.
As long-term investors in Taiwan we prefer to look at the investment flows by Taiwanese companies into China as an indicator of the state of relations and not media speculation regarding the prospect for military hostilities. If China were going to invade Taiwan it would have happened years ago. The financial relationship between China and Taiwan is strong and growing. It is that financial relationship which will ultimately guide China and Taiwan to a sensible compromise regarding political differences.
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