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Today, September 18 the ASX 200 dropped 19 points to finish at 5865 which is only 30 points lower than it was in the last Not So. The rollercoaster is acting as a headwind as markets catch their breath after a strong rise from March lows. The US Election is less than 8 weeks away and markets aren’t sure which way it will fall. Markets would like a decisive win either way and definitely don’t want a drawn-out close race.
The K economy is still with us as COVID is effecting all businesses differently. There is some growing concern about increasing case numbers in Europe, given they are headed into the cooler months. The questions still is, how long will the government provide support? And when will the economy open? If the economy opens before Christmas, then we are likely t see a rally in those K’s falling arm companies. Still, if the lockdowns continue into next year, then business survival will be a problem for some.
Quote to live by: Convert your income into assets, or you will work forever.
Morgan Stanley has updated its market view. They have generally been the most ‘bearish’ of the brokers we follow.
Whilst international equities have recouped their losses on a year to date basis, Australian equities remain -9% below their year-end level. The second lockdown in Victoria has penalized the economic recovery and has led Morgan Stanley to downgrade their GDP forecasts. This impacts the earning outlook.
The Australian equity market remains very expensive and we believe high multiples (ASX 200 12-month P/E now at -20x) constrains the upside of both on a relative and absolute level.
In the absence of a solid earnings recovery and with dividend yields expected -3.1% (unfranked) for the next 12 months, the main appeal of Australian equities is also diminished. We expect the normalisation to long term averages will be a long one.
We have a preference for quality as a factor and not only growth. However, we expect the growth style underperformance versus value over the next few months.
Value stocks benefit from a solid valuation buffer and in the short term will likely benefit from the passing of further fiscal stimulus as well as rising inflation pressures steepening the yield curve.
Small cap stocks benefit from attractive valuations and greater cyclicality in a context of economic stimulus aimed at domestic consumers.
We have lowered our preference for the US and are now neutral across the regions tactically. Japans long term prospects remain attractive: the bulk of the progress since 2013 has been instituional/structural and the trend towards stronger shareholder returns should remain intact .
We see opportunities in Emerging Markets (EM) thanks to a weaker USD and accelerating growth – with a preference for China.
While Morgan Stanley is preferring Emerging Markets Betashares provided a research piece about the Rising Middle Class in Emerging Markets. In emerging markets, urbanisation generally brings a growth of the middle class. The Asia-Pacific region, in particular, is expected to see middle-income growth skyrocket by 2030, with 3.5 billion people in the middle class – over 150% growth in just 15 years.
This growth is changing consumption habits, and sparking demand for a broader range of goods and services. For instance, insurance is a high-margin service that is uniquely demanded by populations with middle-class incomes. As equity investors, its important to consider how this demographic trend will translate into consumer behaviour and what that will mean for the companies we invest in.
Emerging markets are adopting newer disruptive technologies and adapting to digital life faster than developed markets.
China is not the worlds largest e-commerce market, boasting some of the highest user rates of financial technology services for money transfer and payments, savings and investments, and borrowing. Whats more, China and South Korea are both on the front lines of future innovation – ranking among the top 5 countries for total patent applications (see table below).
Technological innovation brings with it new types of businesses, and thus differentiated profit pools. This means that if we can identify disruptive businesses, we will have the ability to tap into companies that are fuelled by dual benefit of differentiated business models and strong underlying economic growth.
Economic diversification has changed the shape of opportunity in EM. The last decade has seen a major shift away from energy and raw materials towards the consumer, financial and high-tech. This trend has allowed more EM-based companies to act as industry leaders, especially in technology (see 2nd table below)
The combination of large urban centres and demographically young populations allows for innovative companies to scale digital businesses in a way that were previously impossible. For example, Ant Financial Services Group is currently developing artificial intellegence-based tools to more efficiently serve the financial needs of Chinas 1.4 billion person market.
Coronavirus or COVID 19 news
The global Coronavirus cases are still rising. Yesterday saw the number of new infections worldwide grow by 314k, a new record. Last update was 242k. Highest daily is 314k (310k).
The latest figures on the virus are, figures in bracket are from the last “Not So” dated Sep 15 30,342,039 (29435721) infected. The deaths have increased to 950,280 (932445) Thankfully the numbers recovered have increased to 22,032,816 (21269985). This includes 23,792 (23578) of 26,813 (26692) Australian cases. Unfortunately, there have been 832 (816) deaths.
Forty countries have now passed China’s total. The latest being Netherlands. The US still has plenty of cases increasing to 6,874,596 (6749289) cases or 22.66% (22.93%) of all cases. India is now the fastest-growing adding 96k (record 97k) today.
US India and Brazil account for 54.52% (54.42%) of all cases.
There are 10(9) small countries that are corona free. The biggest case count that has fully recovered is St Vincent Grenadines who had 64 cases but none active. The virus is difficult to eradicate as Djibouti who was clean after having 5399 cases has now 5 (4) active cases. NZ has 70 (83) active cases.
The reverse Olympics where you want to be lower down the pecking order
The number of cases Australia ranked 73. Last Not So we were 73. Our best 73.
The number of death Australia ranked 54. Last No So 55. Our best 85.
The number of active cases Australia ranked 90 Last Not So 77. Our best 111.
There is increasing talk of a vaccine, but when delivered will be interesting to see.
This means instead of living in a POST COVID world, we might be in a “living with COVID world”. This is likely to have major implications for businesses, social interaction, investments and living in general. We are currently reviewing our investment strategy to take into consideration the potential changes.
Sports Bet – US Election Trump $2 ($2). Biden $1.80 ($1.80)
)US interest rates are likely to stay near zero for 3 to 6 years after this week’s US Federal Reserve meeting.
UK Bank of England considering negative interest rates.
Australian’s are paying down debt.
Australia’s unemployment rate unexpectedly dropped from 7.5% to 6.8% with the creation of 111,000 jobs. However, this is an artificial number due to the Jobkeeper program.
OPEC is trying to enforce production cuts. Oil demand was 100m barrels per day before COVID. It dropped to 76m and is now back to 95m. OPEC want supply to fall to 90m to create a higher oil price.
Ord Minnett/JP Morgan
Origin Energy (ORG) increased from $6.12 to $6.34
Sonic Health (SHL) increased from $33.50 to $34.50
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This email is presented by Scott Mildren as an Authorised Representative of Hillross Financial Services Ltd ABN 77 003 323 055 (“Hillross”), AFS License No. 232705. Any advice contained in this email is of a general nature only and does not constitute personal product advice. In preparing the advice no account was taken of the objectives, financial situation or particular needs of any particular person. Therefore, before making any investment decision, readers should consider the appropriateness. Although the information provided in this email was obtained from sources considered to be reliable, Hillross, Provincial Wealth Pty Ltd & the writer does not guarantee that it is accurate or complete. Therefore readers should not rely upon this information when making investment decisions. Hillross does not accept any liability for any resulting loss or damage suffered by a reader or by any other person.
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