Video : Strategy Update : Recent Sell-off

Bernard Doyle, JBWere NZ Strategist, presents his views on the world economy and asset allocation strategy in light of the recent market sell-off.  Well worth a watch, click on the image below.

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Do bear markets bring recessions?

Robert Armstrong, from the Financial Times, and writer Giles Wilkes explore a history of bear markets and ask whether a market rout always leads to a recession.

Bear Markets and recessions

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Survey shows benefits of retirement planning

playing-golf-1A joint survey by the Commission for Financial Capability (CFFC) and the Financial Markets Authority (FMA) published in August examined how well New Zealand’s older population (aged 50 or more) is planning for retirement.

It found that retirees who had some form of plan for their retirement were far more likely to enjoy the kind of lifestyle they wanted.

Other key findings include:

  • Almost half of people over 50 years old have yet to figure out how they will reach their retirement goals
  • 40% of people who have already retired did so without a financial plan for their retirement
  • Only one in ten people over the age of 50 are certain they have enough money saved or invested to enjoy the lifestyle they want when they stop working
  • Of those already retired, a quarter said they do not have the money to do the things they would like in retirement
  • 54% of people approaching retirement have some form of financial plan. However the degree of planning varied, with only about a quarter having planned thoroughly
  • 42% of non-retirees have calculated the regular expenses they would need to cover, and 34% have worked out how much they would need on top of NZ Superannuation to give them the lifestyle they wanted
  • Only 24% of those surveyed had ever used a risk profile tool to help them think about what level of risk was appropriate for them.

David Boyle, CFFC general manager of investor capability, said the research shows that many people are leaving their retirement plans to the last minute.

“At 50-years-old, when you have potentially 15 years to go before you stop working, there’s still time to make a big difference to your lifestyle choices in retirement,” he said.

For full results click here.

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No end to bull market despite ‘third gear’ economy

Bull Charging

The latest asset allocation update from JBWere New Zealand’s Investment Strategy Group stops short of calling an end to the bull market but describes the global economy as “stuck in third gear” and sees possible rate hikes by central banks as a bigger risk to equity markets than China’s flagging economy.

Low US interest rates has been “a major contributor” to the bull run of recent years but JBWere foresee a threat to equities if central bankers “began worrying about inflation and hiking rates accordingly.”

Whilst this may be some way off, the group has been tempering its clients’ return expectations. “A double-digit [return] year in equities is not the norm” it says, even though “a bull market can still be high single-digit returns”.

Recent falls in the local sharemarket was creating buying opportunities but, with volatility increasing, JBWere has been putting clients into overseas hedge funds, which can profit in both rising and falling markets.

As for China, the group doesn’t think the economy was heading for a so-called ‘hard-landing’ but rather “a bumpy, managed slowdown” especially as a severe downturn would put political stability at risk – something the authorities would obviously be keen to avoid.

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Video – Navigating the Global Investment Environment

Very interesting update from the New Zealand Institute of Economic Research on the investment environment for New Zealand investors. They cover all asset classes and what is good value at present (not much!) as well as a great summary of the Chinese economy and the effect of any slowdown will be on the New Zealand economy and global markets in general.

Key take-out is that geographic and asset class diversification is essential in the current environment. Well worth a watch for an independent viewpoint on current investment environment.

 

NZIER Creenshot

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Playing safe might hurt in the future

Wye Creek038

 

Tom Hartmann, resident blogger at sorted.org.nz , recently posted about comparative risks in investment decisions. Specifically he looked at the classic ‘now risk’ vs ‘later risk’, or how “taking greater risks now means reducing them later, and vice versa: taking too small a risk now means it will loom larger down the line.”

With KiwiSaver, fund managers present these risks in different investment profiles from which the investor can choose to suit his or her preference. So growth assets like shares and property typically have greater returns in the long run but tend to have more volatility along the way than income assets like bonds or cash.

But for many investors the greater ‘now risk’ in the short term is outweighed by the ‘later risk’ of not having enough to reach their investment goals.

As Hartmann concludes: “Most of us have an allergy to risk – we naturally tend to put it off for the future. Somehow we need to overcome that.”

A discussion with us about your investment goals and our recommendations on how best to achieve them is a good place to start.

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What is going on with China’s markets?

Good analysis from the Financial Times looking at recent the Chinese share market gyrations, what effect they will have on the Chinese economy and the wider emerging market economies.

Chinese market

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Celebrating Mountain Life

It’s that time of year again when people in Wanaka throw themselves into scaling mythical peaks, kayaking down fierce whitewater, mountain biking knife-edge ridges and skiing lines down sheer cliffs all from the comfort of the Lake Wanaka Centre! The New Zealand Mountain Film Festival begins today with some awesome sessions that everyone can enjoy, regardless of their personal adrenalin limit. For the 2nd year, we’re proud to support this annual event as a patron. We’ll be on the edge of our seats for the next four days and getting inspired planning our own next outdoors adventure, although they might not be quite so extreme!

Tasman Glacier

Ski Touring Tasman Glacier with Mt Cook and Tasman Glacier in the background

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China in denial?

Does China have its head in the sand about the health of its economy? Jamil Anderlini, Beijing Bureau Chief for the Financial Times, points to half-finished construction projects around Beijing as a sign that parts of the country “face a perfect storm of overcapacity, demographic shifts and the potential for local debt crises”.

Moreover, he quotes research revealing that China’s actual growth rate is lower than official government figures which themselves represent the slowest growth in 25 years:

“The question is whether the ruling Communist party can maintain sufficient growth to ensure employment and stave off social unrest in the medium term, while reforming the model that served it so well for more than three decades,” he concludes.

See full article here.

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Festival of Colour

The Festival of Colour programme was launched on the 12th February. And what an amazing line up of top quality dance, theatre, music and art it is. We are proud to support this amazing festival as a Local Business Sponsor to help bring the arts to our somewhat isolated part of the world. The programme can be downloaded here.

festival program

 

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Video

Are Markets Ignoring Greece?

Good video from James Mackintosh, investment editor at the ft.com, assesses why most remain markets remain calm despite the possibility of a Greek exit from the Euro. Is this the calm before the storm (we don’t think so…)

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Uncertainty on Long Term Effects of QE

printingpresses

As QE3 – the US Federal Reserve’s third round of quantitative easing – ends, the UK’s Daily Telegraph paints a mixed picture of its overall success.

On the one hand, those economies taking decisive action like the US and UK have survived severe fiscal tightening without further recession. On the flip side, the rest of the world may be on the brink of an even greater crisis caused by this action.

The report compares the response of the Fed to that of the European Central Bank (ECB): “By contrast, the eurozone carried out its fiscal austerity without monetary stimulus to cushion the shock, lurching from crisis to crisis as a result… You have to go back to the Thirty Years War in the 17th century to trump the economic devastation of EMU.”

But the real problem may lie with emerging economies. India has argued that the West’s quantitative easing has only shifted the burden onto others leaving the global economy “more vulnerable than ever”. Rapidly increasing debt could trigger devastation if there is a even a slight loss of liquidity.

China’s recent change of strategy to become a net seller of financial assets to a level that the ECB cannot counter with its ‘QE-Lite’ programme could potentially cause just such a situation.
Could we be looking at QE4 sometime soon?

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European stocks to reward the patient investor?

Based on the maxim that “when a consensus grows strong enough, there are great profits to be made from betting against it”, John Authers made a case in the FT recently for investing in European stocks, albeit “for those with patience”.

The current consensus, established once markets began to rally after the 2008 financial crisis, is that “the US will be fine, while Europe will not”.

Whilst agreeing that this is in fact based on reality and also that established market trends can continue long after the reality that established them has altered, Authers suggests that the current price of US and EU stocks compared to their respective average earnings can only be justified if the US boom continues while Europe falls further into recession.

This he says is “hard to swallow” with European corporates now “positioned for a revival”. Also the US economy could grow too fast, sparking inflation and causing higher interest   rates that would hit share prices.

The conclusion is that the US cannot continue to stand alone and the consensus on growth stateside will actually pull the eurozone with it. Hence “European stocks will outperform US stocks over the medium term”.

Patience

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Is the US Dollar’s rise a safe bet?

Few investors would currently bet against the US dollar continuing to rise. Economic growth is outstripping most other developed countries, the Fed might finally be able to raise interest rates next year and America’s current account deficit is shrinking fast.

All this as European and Japanese growth stalls. Their central banks favour a high dollar to assist their own recovery.

As JPMorgan Asset Management write in the Financial Times, history shows that major currency trends usually last once established so there’s no reason to expect the greenback to level off anytime soon.

Whilst this may harm US equity returns, it should indeed lead to stronger corporate profits in Europe. Evidence also suggests emerging markets might withstand this latest period of dollar strength better than before.

There is still a danger that the dollar’s strength could lead to a dangerous imbalance amongst the world’s biggest economies. But, as the FT story concludes, “the last time the US dollar rose sharply and the oil price collapsed it was the start of the great recession. The prospect of unbalanced global growth over the next year or so is a lot more attractive than no growth at all”.

There is also a good video from the FT explaining some of these trends see below.

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Falling oil prices – good or bad?

The price of oil continues to fall. After a slump of nearly 7% in one day late last month, caused by Opec’s decision not to cut production in the face of increased supply, Brent Crude now stands even lower at around $56 a barrel, a 5 year low.

As The Economist pointed out recently, if the stock market had dropped by a similar amount we’d be talking about a crash.

The effect has been a drop in currencies linked to oil and concerns that prices are now way below the break-even price for many governments of oil producing nations, raising the spectre of political and economic unrest in those countries. The price drop may also be an indication of a slowing global economy as demand has also softened.

On the positive side, a low oil price is historically matched by higher returns from equities. It also acts as a tax cut for western consumers filling up their cars, hence a feel good factor for many. The associated deflationary pressure could make central banks intervene, which would also be positive for equity markets. Opec’s next step will be interesting to watch.

Oil-Price-Fall-

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