Note from the editor - 22 February
Low rates 'for decades'; emerging market debt; virus and Chinese tech stocks; Aussie's fall; $1.5 trillion fund merger; portfolio rebalancing; earnings; tyranny of Theranos.
Mentioned: Coles Group Ltd (COL), Brambles Ltd (BXB), CAR Group Ltd (CAR), Magellan Financial Group Ltd (MFG), Pact Group Holdings Ltd (PGH), Wesfarmers Ltd (WES), WiseTech Global Ltd (WTC)
Whenever the RBA minutes are released, it’s common practice for the newspapers to run a “translation” of the governor’s remarks. Philip Lowe spoke this week but there was scarce need for a media interpreter because the nation’s rate-setter-in-chief was uncharacteristically frank.
“We’re going to be in this world for a long period of time,” Lowe told an Australia-Canada forum. That world is the world of low interest rates, which by Lowe’s reckoning could be around “for years, possibly decades”. On the central banker candour scale, that’s pretty much like saying “I love you” on the first date.
The cash rate is at 0.75 per cent and many reckon it’ll take another trim next month. What does it mean? Well, more angst for the yield-starved investor, says Firstlinks’ editor Graham Hand.
“The big question,” Hand says, “is how much will investors fleeing these low rates continue to support the equity market, even as it looks expensive on historical earnings measure?”
Nor was Lowe’s warning lost on Morningstar head of equity research Peter Warnes. “When you’re painting yourself into a corner, make sure you’re near the exit.” Obvious advice, you might think, but Warnesy’s not entirely convinced the RBA is heeding it. See if you agree with him, here.
Speaking of yield, we also recently spoke to Arif Joshi, managing director of emerging market debt Lazard Asset Management. This asset class may conjure images of the Asian crisis of 1997 or the Argentine default in 2001, but Joshi puts a compelling case for emerging market debt and reveals some nice returns.
Another week, another coronavirus update. For the first time in a while, US markets got a little skittish amid murmurs of the word “pandemic”. Morningstar equity analyst Chelsey Tam examines its impact on the big Chinese tech firms and explains why they may see faster adoption rates in the long term.
The losers, on the other hand, says Tam, will be online advertising and online travel, which will cop a hit because of trip cancellations and drastically reduced travel demand. See who Tam thinks will come out in front here.
Elsewhere, Nicki Bourlioufas explores the fall in the Australian dollar and what it means for those investing offshore; James Gard picks over the decision of fund giant Franklin Templeton to acquire rival Legg Mason, creating a $1.5 trillion group; and Anthony Fensom puts the case for portfolio rebalancing.
There was also another slew of companies reporting this week. We examine WiseTech, Crown, Wesfarmers, Coles, Woodside, Magellan, Brambles, Pact and more.
Finally, as the countdown to the August trial of Theranos founder Elizabeth Holmes begins, Morningstar Investment Management’s Erica Hall revisits the case and identifies the lessons Holmes’ spectacular rise and fall holds for investors.