The Australian materials sector (largely comprising our major miners) has performed relatively well so far this year due to firmer commodity prices and a relatively benign United States interest rate outlook. Although valuations in the sector appear high, they might be justified if commodity prices hold up near current levels and miners are able to keep a tight reign on costs.
The Australian dollar has proven stubbornly resilient in recent months, thanks to firm iron ore prices and reluctance on the part of the United States Federal Reserve to raise US interest rates. This note updates our valuation model of the Australian dollar, particularly in light of recent comments by the Reserve Bank suggesting the terms of trade may have already bottomed. Based on the analysis, my year-end call for the A$ is 0.72c, declining to 0.68c by mid-2017.
The Australian exchange traded fund industry hit a new all-time high in August of $23.6 billion in funds under management (FUM). The industry gained a modest 1% (or $220 million) in FUM, building on the positive growth from July, which had marked the previous record.
Solid US economic data and hawkish rhetoric from several Federal Reserve members saw markets last month start to fear re-commencement of US official interest rates hikes. Whether the Fed hikes rates or not in coming months, a key emerging investment theme nonetheless is a maturing in America’s expansion due to diminished spare labour market capacity. In turn, this continues to favour our long-held defensive stance with regard to growth assets.
As investors, we’ve often heard about the ‘benefits of diversification’ for investment portfolios and frequently been told ‘not to put all our eggs into one basket’, but have we really thought about what these ideas mean? In this short post, I’ll try to shed some light on this.
With expectations rising that the United States Federal Reserve may re-commence its interest rate tightening schedule as early as next month, one potential investment opportunity could be the downtrodden global banking sector. Indeed, it may surprise some investors to know that rising short-term interest rates can in fact help profitability for some global banks, as it helps fatten net-interest margins (NIMs).
The ongoing growth of the Australian ETF industry means that investors who have an interest in obtaining exposure to commodities are now able to choose between Commodity ETFs or Commodity Company ETFs. In this post I describe some of the key differences between these two types of products and why an investor may decide to choose one over the other.
This week’s annual meeting of global central bankers at Jackson Hole comes at a time when investors are beginning to question the wisdom of ongoing extreme monetary stimulus. Contrary to many critics, however, my concern is not that these measures have not worked. Instead, I maintain they’re simply not needed, as the global economy is as good as might be expected once allowance is made for slowing potential growth and falling commodity prices. To my mind, the far bigger global risk now is the impact of persistent misguided extreme monetary measures on financial stability.