NEWS
20 Oct 2023 - Hedge Clippings | 20 October 2023
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Hedge Clippings | 20 October 2023 Last week Hedge Clippings noted that "Central Bank Speak" involves the specialised art of covering all bases and potential outcomes, whilst not actually confirming what you're really thinking, or going to do. The exception of course is when they actually raise or cut rates, in which case they refer you back to their previous comments, and basically say "I told you so", or "don't say we didn't warn you." So while US markets are tossing up between rates staying as they are, or possibly rising one more time, Jerome Powell's overnight comment that "a range of uncertainties, both old and new complicate our task of balancing the risk of tightening monetary policy too much, against the risk of tightening too little" didn't actually say anything we didn't know, except they haven't made their mind up yet. To be fair to Powell, and the RBA's Michele Bullock if it comes to that, the US economy is evenly poised, balanced between trying to re-bottle inflation to get it back to the 2% target, maintaining sufficient growth and employment, and without risking "unnecessary harm to the economy" as he puts it. Powell's problem is that achieving both is a very difficult balancing act. The market is currently betting on the Fed holding the line at their upcoming meeting at the end of this month, but has no such certainty looking forward to December. Back home, the ABS released their Australian labour force figures, and on the surface, little had changed. Unemployment decreased fractionally on seasonally adjusted terms to 3.6%, with total employment edging up by just 6,600 but with full-time jobs decreasing by 39,900 offset by part-time jobs increasing by 46,500. The RBA wouldn't have been too pleased with those numbers in their efforts to return the cash rate to their preferred 2-3% target band, having previously indicated that unemployment around 4.5% is necessary to cool the economy, and thereby tame inflation. Next week's September CPI figure, due on Wednesday, followed by PPI results on Friday, will give a clearer picture of the outlook. Meanwhile, the minutes of the RBA's September meeting revealed the board didn't consider a rate cut as an option - it was either leave rates as they are, or increase them by 0.25%. That's likely to be the case again at their next meeting due on Cup Day. At this stage, we'd still favour an extension of the "pause" but wouldn't want to bet the house on it. As the previous governor was keen to say, "it's a very narrow path." News & Insights 10k Words | October 2023 | Equitable Investors Market Commentary | Glenmore Asset Management September 2023 Performance News Delft Partners Global High Conviction Strategy Quay Global Real Estate Fund (Unhedged) Digital Asset Fund (Digital Opportunities Class) |
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13 Oct 2023 - Hedge Clippings | 13 October 2023
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Hedge Clippings | 13 October 2023 Has the Fed lost the (dot) plot? Australia's RBA has its bulletin to update the rest of us to their thinking after their monthly board meeting, but they rarely spring any surprises. They basically say what they want us to hear, but generally in central banker-speak so as not to frighten the horses, while at the same time having two-bob each way on future decisions. This possibly explains the criticism of Philip Lowe's so-called "prediction" back in 2020, mid-Covid, that rates wouldn't rise until 2024. As above, good central bank-speak tries to convey calm, whilst leaving the door open to the fact that whilst everything in the past is obvious, nothing in the future is certain. Former head of the US Reserve Alan Greenspan was famously completely obscure in his lack of clarity, once telling a business audience "If I've made myself too clear, you must have misunderstood me." The US Federal Reserve on the other hand make use of a quarterly "dot-plot" developed by former head honcho Ben Bernanke to convey what the Fed is thinking. Which of course means that 95% of the population either won't take any notice, or if they do, they don't understand, relying instead on the markets to follow the dots, (or at least the change since they last looked) and gyrate bonds rates accordingly. Just recently the market's done just that, firstly sending bond yields to multi year highs and putting the skids under both bonds and equities, before comments from one Fed member had the markets seemingly backing off that view. Whichever way it turns out, there's little chance of inflation, and therefore rates, falling any time soon, and it's our belief that the Fed's 2% target is a long way off - barring a major recession. There you go - we've had our two-way bet as well. Enough of economics, time for politics. Having carefully avoided the referendum for the past few months, Hedge Clippings wonders if Albo lost the (dot) plot when promising a referendum on the Voice, which, if the polls are to be believed, is not going to pass? Referendums are historically hard to result in change, at least at the ballot box. However had Albo asked Australians to vote to include in the Constitution the fact there were traditional inhabitants or owners prior to 1900, or 1788, we suspect that would have won in a canter (this week's horse references to get you in the mood for Spring Carnival time). Having got that done and dusted, he could then have set up an advisory body to try to improve the lot of disadvantaged First Nations people, and to make sure that the annual (reported) $39.5 billion allocated from the Federal budget actually resulted in an improvement in their living standards, health, life expectancy and incarceration levels. There'd be few fair-minded Australians on either side of politics who would object to either of those outcomes. Instead, whatever the result of tomorrow's vote, there's going to be angst and disunity over a subject that everyone agrees is an embarrassing national disgrace. Finally, going, going, not quite gone yet! This week saw the announcement we'd all been waiting for, although most had expected it earlier than this: Qantas chairman Richard Goyder will step down - but not for another 12 months until next year's AGM, during which time he'll pick up another $750,000 in salary - assuming the remuneration committee doesn't increase it as they did in 2023. And of course, Goyder, and eligible family members, will receive two more (free) long, and six short haul flights during his pre-retirement year (turning left at the cabin door we presume). A couple of other Qantas directors will retire pre the airlines half year results in 2024, which will at least give time to find suitable replacements. Meanwhile, no sign of Alan Joyce, or the $24 million he reportedly trousered before he skipped the country (also presumably first class). 'Nuff said! It's likely to be another going, going, gone guessing game for both Eddie Jones and his ARU board supporters as the Wallabies come back to the country this week-end, but enough said about that debacle as well. However, even if you have to stay up until 2:00 AM to watch it, or get up early for the 6:00 AM games, there should be some great rugby on the box this week-end. News & Insights What are Warrants and what is a Bond/Warrant? | PURE Asset Management Investing Essentials: Understanding fund fees - price versus value | Bennelong Funds Management September 2023 Performance News Argonaut Natural Resources Fund Bennelong Emerging Companies Fund |
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6 Oct 2023 - Hedge Clippings | 06 October 2023
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Hedge Clippings | 06 October 2023 As expected, the RBA kept rates on hold last Tuesday, and in the Governor's statement following the board meeting, incoming chair Michele Bullock stuck to her predecessor's script: While cautious, she expects inflation won't be back to the 2-3% target range until late 2025 - at least 2 years away. As always, the last sentence of RBA-speak remained consistent: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome." That warning provides those economists predicting one more rate rise this cycle the chance that they'll be proven correct, but based on the numbers available at present, the 12 upward steps totaling 4.0% taken to date seem to be having the intended result - although the progress is painfully slow, while the effect on mortgage holders is just painful. Things may seem steady in Australia (at least on the monetary policy front) but in spite of our comment in last week's Hedge Clippings that the outlook for US rates was broadly the same as here (i.e. steady as she goes, although "higher for longer") but with the chance of one more rate rise, that possibility seems to have been confirmed. The market was certainly not waiting for confirmation: The yield on 30-year US government bonds hit 5% on Tuesday for the first time since 2007. In the United Kingdom, the yield on 30-year bonds also reached 5% this week, the highest level in more than two decades. Yields on German long-dated bonds are back to levels last seen in 2011. Yields on Italy's 10-year bonds hit 5% on Wednesday, the highest level since 2012, when the Eurozone debt crisis was in full swing. So even though the outlook for Australian rates may be cautiously optimistic, (i.e.staying steady) the global outlook for bonds, and, as a result, equities, is causing considerable pain both globally and in Australia. News & Insights New Funds on FundMonitors.com Investment Perspectives: A big disinflation tailwind is coming | Quay Global Investors China - the re-opening trade that never quite was | 4D Infrastructure August 2023 Performance News Equitable Investors Dragonfly Fund
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29 Sep 2023 - Hedge Clippings | 29 September 2023
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Hedge Clippings | 29 September 2023 Although some sections of the media attempted to make a big deal of it, Wednesday's headline annual inflation rate for August, which came in at 5.2%, up from 4.9% the previous month, was both widely expected, and no cause for the RBA to reverse their recent "pause" approach. That will come as a relief for Michele Bullock, who would hardly have wanted to kick her tenure off with a rate rise after three straight months of them holding steady. The RBA board will be more interested in the core inflation level, which excludes volatile items such as fruit and vegetables, fuel, and holiday travel, and which fell to 5.5% from the previous month's level of 5.8%. The pain points in the numbers were bread and cereals, and dairy, both of which recorded a 12 month rise of just over 10%, offset by fruit and vegetables which fell by 8.3%. We assume anyone on a diet of bread and potatoes therefore (apart from a growing girth) would have come out about even! On a more serious note, gas and electricity rose over 12%, and fuel costs were up almost 14%, as anyone who has filled up recently would know. While inflationary, both these are in part doing the RBA's job of dampening consumer demand, as evidenced by the insipid retail sales figures for August, which came in at 0.2% for the month, and 1.5% for the year. While a few economists are still predicting the possibility of one more rate rise down the track from the RBA, on current data that's unlikely. However, the "stronger for longer" inflationary and interest rate outlook is far more likely, with our view that the 2-3% band is at best a long way off, and quite possibly a thing of the past. Ditto in the US, although the potential for one more rate rise is possibly a little higher than here. However Jerome Powell is shooting for 2%, as opposed to the RBA's 2-3% band, and that's going to be even harder to achieve without more consumer and economic pain. Ditto, or at least "deja vu" seems to be the best way to describe a number of goings on in the US at present: The recurring potential for a government funding shutdown is on again, although as yet markets don't seem too concerned. Maybe they're getting used to it, having seen previous negotiations always end up the same way - with an increased debt ceiling. Sooner or later one would think the ceiling's going to crack, or ...? And finally, in the US everything to do with Donald Trump also seems to be a recurring theme, with yet another court appearance (and loss), and yet another non-appearance at a Republican presidential debate. Neither avoidance, nor appearance seem to dent Trump's self belief, or for that matter, his supporters' commitment to his cause. Only in America! Moving on: We could try to intertwine commitment into any discussion regarding the Wallabies performance in the RWC last week, but that might be a cheap shot. If you take a youthful squad, many of whom should only have been playing at the 2027 event, and leave your most experienced players behind, what do you expect? As far as commitment goes, or the perception of it, Eddie's discussions with the Japanese RU will hopefully result in him accepting their job offer. If it comes, it can't come soon enough! We hope the Wallabies can overcome Portugal on Monday morning, but even that might not be a foregone conclusion based on last week's performance. However, this week-end should see a tighter contest at both the AFL and ARL Grand Finals. Sit back and enjoy, and may the best teams win. News & Insights Market Commentary | Glenmore Asset Management Climate Finance Strategies and Global Decarbonisation | Emit Capital Market Update August | Australian Secure Capital Fund August 2023 Performance News |
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22 Sep 2023 - Hedge Clippings | 22 September 2023
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Hedge Clippings | 22 September 2023 The US Federal Reserve put out their latest press release earlier this week, with a consistent message scattered through its 293 words: Inflation, mentioned 9 times, and 2 percent mentioned 4 times. With the current rate of inflation at 3.67% - up from 3.18% last month, although way down from 8.26% last year - there's still a long way to go. Maybe taming inflation is a bit like losing weight - (trust me, I know!) - the difficulty is the last part when things become really stubborn! That seemed to be the message Jerome Powell and his fellow FOMC members wanted to get through - that the road to 2% is not going to be easy, so don't expect any early move on interest rates - at least not down. The market meanwhile didn't like it and responded accordingly. Back home Australia's new RBA Governor Michele Bullock is unlikely to change her predecessor's approach when she chairs her first board meeting in a couple of weeks. Although she may use different words to Philip Lowe's "narrow road" rhetoric in the ensuing media statement, this is probably unlikely as well. As much as she'll want to stamp her individuality on the role, we also suspect that, having sat alongside her former colleague for so long, she'll be singing from the same song sheet. She's in a better position than the US, although there's still a long way to go. For a start, the RBA has a target band for inflation of 2-3%, whereas the US has a specific target of 2%. On the other hand, Australia, particularly with its dependence on imported oil, is more of a price taker than a price maker when it comes to inflation - particularly with an upcoming El Nino event now almost certain. There have been other hand-overs this week, each with their own twists and turns. Vanessa Hudson has taken over from Alan Joyce at Qantas and has taken no time to change his tune by apologising for past performances - something he was never known for. Not that Hudson had much choice. Meanwhile, Rupert Murdoch has finally stepped aside - well, sort of. We doubt if his influence will really wane until his eventual final exit, but even then, how different will Lachlan be, given his heritage and history? Enough of business and economics. We're heading into footy finals season - or in the case of the Wallabies, possibly into the quarter finals of the Rugby World Cup, taking on Wales early on Monday morning (AEST). They'll need to have a massive turnaround to do so, based on the rubbish they dished up last week-end. If they don't, there'll be a few heads that will no doubt roll at Rugby HQ - starting with Coach Jones and Chairman McLennan. In reality, rugby union in Australia already ranks far below the AFL, with 95,000 headed to the MCG for tonight's Preliminary Final. If the Wallabies can't make it past the RWC pool stage, interest in the game at international level will slip further - and possibly into insignificance. You'd have to be an optimist - and an early riser - to get up at 5 o'clock on Monday morning to tune in. Hedge Clippings generally fits both of those categories, but sadly on this occasion, while we'd never say never, isn't optimistic! News & Insights 10k Words | September 2023 | Equitable Investors Trip Insights: Europe | 4D Infrastructure August 2023 Performance News Bennelong Emerging Companies Fund Emit Capital Climate Finance Equity Fund |
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8 Sep 2023 - Hedge Clippings | 15 September 2023
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Hedge Clippings | 14 September 2023 After all the machinations which have surrounded Qantas over the past few weeks, and which have taken the focus of Hedge Clippings away from the real task of looking at economic issues and the performance of managed funds, it is probably time to get back to basics. Having said that, the trials (literal and figurative) facing Qantas, and in particular the new CEO, Vanessa Hudson, and Chairman Richard Goyder are far from over. Hudson of course can, and will claim - or blame - her predecessor, although it seems like she either endorsed his policies, or didn't or couldn't stand up to his overbearing style. She'll no doubt get away with that excuse, but Goyder has nowhere to hide as chairman, and one who was cheer-leader-in-chief for the recently departed Irish elf. Goyder either believed Joyce was the "best CEO in Australia by a length of a straight" as he described him, or he was fooled into thinking so. Either way, it was a massive character judgment failure on his part, as well as one of corporate governance. The upcoming Qantas AGM is scheduled for November 3rd, and should be a jam packed and fiery event. Qantas might even resort to selling non existing tickets to it, but even though it's scheduled just a few days before the Melbourne Cup, it's doubtful if the chairman will be referring to his previous racing analogy when farewelling his disgraced former CEO. What the whole Qatar / flightless tickets debacle has done is to call into question the level of overt, or maybe covert, influence membership of the Qantas Chairman's Club wields throughout the corridors of Canberra and beyond. Power corrupts: Absolute power corrupts absolutely, or so the saying goes. The issue in this case is not power, but undue influence, or the perception of it. Didn't we say it was time to get back to basics of the economy? The hard/soft landing debate continues, both here and overseas - at least in the US, as it appears the landing in the UK is unlikely to be anything but hard. China's landing is likely to be bumpy at best, but getting an accurate picture of the world's second largest economy is anything but easy, coupled with the centralised and authoritarian decision making process. Australia's tightening phase would appear to be over, although it looks like rates won't come down anytime soon, given the unemployment rate remains sub 4%. There are a few wild cards out there, as always. Saudi Arabia and Russia are in lockstep to reduce oil production and keep oil prices, and therefore inflation, high. Tensions around Taiwan remain, even if overshadowed by China's economic issues, and of course Ukraine remains an unknown outcome. Thankfully it's footy finals season to take one's mind off such issues, although you can always stay up late / get up early to watch the Wallabies trying to get out of their pool into the quarter finals of the RWC. Watch this space! News & Insights Cultivating change - Nestlé's leading approach on sustainability and creating shared value | Magellan Asset Management Quay podcast: How high rates are impacting REITs | Quay Global Investors August 2023 Performance News Bennelong Concentrated Australian Equities Fund Argonaut Natural Resources Fund Bennelong Long Short Equity Fund Delft Partners Global High Conviction Strategy Glenmore Australian Equities Fund |
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8 Sep 2023 - Hedge Clippings | 08 September 2023
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Hedge Clippings | 08 September 2023 Yesterday marked what will probably be Philip Lowe's final speaking engagement whilst RBA Governor before handing over to his deputy Michele Bullock on 18th September. Free from the shackles of his position and convention, the outgoing governor took the opportunity to set the record straight on what he had (and had not) promised, whilst also taking a few shots at the level of reporting and attention his previous statements and comments had received. Of course, whilst in the role he had carefully avoided having an all out war with the media (Eddie Jones, take a lesson in humility) understanding that one rarely gets the last word in - no doubt remembering the old adage "never to argue with the person with the microphone". Whilst being pretty direct in his comments and opinion of the media, he was somewhat more subtle, but equally correct in also having a go at government in his speech entitled "Some Closing Remarks". Lowe stated the obvious: Government should carry some of the can for inflation and interest rates, and thus the property market and mortgage stress. In reality the RBA is very much the messenger, in spite of the so called independence. It is the government of the day that has the authority and ability, plus a wide variety of potential policy tools to steer the economy, instead of leaving it to the RBA and the blunt instrument of monetary policy to do the work for them. Fat chance of that happening! As Lowe said, it would require some "innovative thinking" which is a rare commodity in politicians, particularly once they're elected, and don't want to lose the benefits of office - even the unofficial ones, such as membership of the Qantas chairman's lounge, (which really should have been renamed Joyce's Jolly long ago). History has shown we've had multiple examples of "innovative thinking" over the years - think Mark Johnson's 2009 report, Australia as a Financial Centre, or Ken Henry's 2010 Tax Review with its 138 recommendations, most of which are still gathering dust. The major item from the Henry Review which was implemented by the then Rudd Government was the move to create a resources Super Profit Tax. The proposal was highly controversial, and has been suggested as the main reason why Rudd lost power. Both were announced with great fanfare (even if then Minister for Financial Services, Chris Bowen released his response in mid January, 2010, hardly likely to get anyone's serious attention) but neither Johnson's and Henry's efforts or recommendations resulted in little to no "Committed Action". Bottom line - don't trust politicians to actually do anything innovative, even if it is clearly in the national interest, if it also involves personal risk - as Paul Keating said "in the race of life always back self interest - at least you know it's trying". During his term as RBA Governor, Lowe did exactly what was required with the tools available to him, and given the cards he was dealt by the global economy, and policy of the day. He lowered rates to zero in response to COVID and government policy, which resulted in households and corporates being awash with cash, which along with Russia's invasion of Ukraine led to an outbreak of inflation. Like all central banks, he tightened rates (less than the US or UK) to stifle inflation, hopefully without choking the economy in the process. The government takes the credit for low unemployment, but is happy for Lowe and the RBA to take the blame for high interest rates and mortgage stress, to the extent they declined to renew his term in office. It's the government's responsibility to ensure there's sufficient housing to accommodate an immigration level of 300,000+ this year which is helping to keep house prices high, but they won't take the blame when it hurts those under mortgage or rental stress. Lowe will leave with a record of having set and kept to his narrow path, and what may shape up to be a soft landing - no mean feat. He should be applauded. Meanwhile the government has been left with a mess of its own making with - whatever the outcome - a divisive referendum campaign, and egg, or worse on its face over the Qatar fiasco, as has the Qantas board. Alan Joyce is probably public enemy Number 1 in Australia at present, and most people would be lining up to give him the following treatment: News & Insights New Funds on FundMonitors.com Hybrid securities - How risky are they? | PURE Asset Management The Experiences Megatrend | Insync Fund Managers August 2023 Performance News Bennelong Australian Equities Fund |
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1 Sep 2023 - Hedge Clippings | 01 September 2023
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Hedge Clippings | 01 September 2023 Reputation and trust are everything! Anyone involved in financial services - irrespective of which side of the desk they're on - is well aware of the importance of reputation and trust, particularly so as an advisor providing financial advice, or as a fund manager investing other peoples' money. Of course, that doesn't stop dodgy operators, normally driven by both their own greed, and assisted by the greed of some investors, from having a go. When it does occur, it inevitably ends up in tears for the investor, and loss of reputation (or worse) for the perpetrators, as the banks discovered during the Hayne Royal Commission. Mayfair 101 is a prime example and one suspects that's the reason head honcho and salesman James Mawhinney is trying so desperately to salvage his reputation. For the record or the forgetful, Mayfair went down the gurgler, along with over $200 million of "sophisticated" investors' money, thanks to some slick advertising and endorsements from some who should have known better. Finally, ASIC took court action to shut the failed operation, and Mawhinney in turn has fought back, and is reportedly set to re-launch Mayfair. However, in spite of 93% of their reviews on Trust Pilot being "5 star", his reputation is forever settled. If anything, the reputation of Trust Pilot as a reliable source of information is tarnished by association as well. Which brings us to the complete destruction (in our view) of the reputation of Qantas, along with that of CEO Alan Joyce. To be fair, the so called "National Carrier's" reputation as a five star airline took a beating some time ago, as service levels, baggage handling, flight delays, and just about every other factor, other than their safety record, went into a spin. More recently, the obfuscation around expiring flight credits (since reversed thanks to widespread publicity including a Senate grilling for Joyce), Qantas Chairman's Lounge membership for Albo's son, and political pressure to block competition from Qatar Airways, has added to their woes. Finally, this week the ACCC finished the job by taking Qantas to court for advertising flights which had already been cancelled. Presumably, the logic behind this was either to garner even more flight credits, or to stop passengers booking elsewhere. Either way, immoral, and in the ACCC's view, illegal. Qantas was once one of the most valuable brands in Australia, and possibly the world. Greed and a simple lack of ethics has destroyed that, and Joyce's reputation with it. Along with Albo's, and the combined Qantas boards', reputations tarnished by association. As the ACCC's case drags through the courts, and the media, the damage will continue. Joyce meanwhile will be long gone, pockets bulging. We pity his successor, who will have to pick up the pieces. While on the subject of handovers and successors, next Tuesday's RBA meeting will be Philip Lowe's last before handing over to his deputy Michelle Bullock. We suspect no change in direction, and that Lowe will leave - as history will show - with an excellent reputation. Some will note his misjudged "no rate rise until 2024" comment "forecast" but he seems to have traversed his "narrow path" well. Finally, last week we included this photo of Mick Jagger and Mitch McConnell. The week's news only confirmed what we all (possibly with the exception of Mitch himself) knew. News & Insights What really matters in investing | Magellan Asset Management Investing Essentials: How a financial adviser can help | Bennelong Funds Management July 2023 Performance News |
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25 Aug 2023 - Hedge Clippings | 25 August 2023
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Hedge Clippings | 25 August 2023 Wow! What a funny old week that was... but then again when one stands back from the headlines, it was more like a slow moving train wreck - or in the case of Yevgeny Prigozhin's presumed mid-air "mishap", more a question of "what took so long"? From what we can glean so far, and given that news out of Russia is curated to say the least, nothing is yet confirmed, other than the fact that a private jet crashed with the loss of all on board. Was Yevgeny among them, was he a target, or was it a way for him to "distance himself" from the long arms of his ex mate, the President? Sooner or later Putin, not widely known for forgiveness, would have found a way to extract his final revenge, either via poisoning Prigozhin's food (which would have been ironic considering he was reportedly once Putin's chef) or some other means. If he was on the plane, it's difficult to have much sympathy. If he wasn't, the best advice would be to watch what you eat, and avoid tall buildings. And then there's the case of Donald, once (and still) known as "President" Trump, facing up to Fulton County Jail to have his mug shot recorded for posterity, and no doubt a whole lot more, along with a dozen other of his co-conspirators. Once again Trump stole the show, having previously (according to some) tried to steal the 2020 US Presidential election, or according to him, having it stolen from him. Sounds more "banana republicanish" to us than Republican, but probably just symptomatic of where the world, or at least the US of A is heading. No doubt he'll garner even more applause and support from his followers, while (just like Prigozhin) it remains to be seen if he survives, or swaps his famous red tie for a more mundane uniform and a potential 641 years in the slammer. Closer to home, even the government's chief media apologist the ABC was questioning the curious co-incidence of the PM's son winning the frequent flyer lottery, and ending up a member of the Qantas Chairman's Lounge. Soon to depart Qantas CEO Alan Joyce deflected questions on how that occurred, citing "privacy" concerns, while at the same time defending a full year profit of $2.47bn., and refusing to refund all or any of the close to $1billion in COVID-19 support the government handed out while he decimated the Qantas workforce. And while Qantas are enjoying record profits on the back of limited seat availability, Albo's transport minister refused to be drawn on the logic of refusing just 21 additional flights per week from Qatar Airways, citing Qantas as the "National Carrier" (actually a commercial and publicly listed company) as in the "national interest". Apparently, any benefits to the long suffering Australian traveling public don't come into the equation, maybe because Albo and co. either don't pay for their tickets, or fly on an RAF VIP aircraft. Barring a complete fall out in the Chinese economy it looks as if Australia will avoid a major recession - unless of course Xi presses ahead with his stated intention of invading Taiwan. That would create a dilemma across the globe for governments, and businesses alike given the level of dependence on China as the world's manufacturer, and consumer. That might make Xi think twice, but in the meantime businesses are moving to reduce that dependence by moving or reducing their exposure. Either way, that's not going to assist China's current economic slowdown. Finally, on a lighter note, we gather the Rolling Stones are quietly planning the release of a new album in September. Which brings us to the following image, or should that be the following question: Whoever thought, back in the 60's, that Mick Jagger would still be around, let alone pumping out music? News & Insights Market Update July | Australian Secure Capital Fund AI reaches an inflection point | Insync Fund Managers July 2023 Performance News Bennelong Emerging Companies Fund Emit Capital Climate Finance Equity Fund Equitable Investors Dragonfly Fund |
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18 Aug 2023 - Hedge Clippings | 18 August 2023
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Hedge Clippings | 18 August 2023 Chinese property dominoes are looking wobbly All is not well with the Chinese property market - and given its importance to the overall Chinese economy, and thus to our major trading partner, there are some worrying signs on the horizon. Domestically, the property sector has been a major driver of China's growth, and thus the overall economy. And for a snapshot of the importance of China's economy on global trade, China is 1st in the world by maritime trade volume, 2nd in the world by shipping capacity, 1st in the world by port foreign trade volume and container throughput, and 1st in the world in shipbuilding by completed gross tonnage. Back to the property sector itself, and the empty or partially completed high rise buildings mean that the worrying horizon is not too far away. In the past week, two of China's most visible property developers' problems have hit the headlines for all the wrong reasons. Country Garden, the largest privately owned development company in China suspended interest repayments on a small number of on-shore bonds, and Beijing-backed developer Sino-Ocean conceded it had missed almost USD 21m of interest repayments on a series of off-shore bonds. As a result, Moody cut Country Garde's rating from B1 to Caa1, and Country Garden shares fell 18% in one day in Hong Kong. Country Garden sales in H1 2003 are down 30% YoY, and according to John Browning's excellent "Letter from Shanghai" the reluctance of buyers to place large deposits - which are then used to complete projects - is causing the developers' liquidity and cash flow problems. The problems in the property sector don't end there, as Browning explains: "The market is looking at the maelstrom that circulates around Zhongrong International Trust, and its connected parent Zhongzhi Enterprise Group. Zhongzhi acts to pool the deposits of its clients to invest in real estate, equities, bonds, and commodities. The guaranteed rates offered investors head towards 8%. Zhongrong International Trust has 270 products, which in totality offer an average yield of 6.88%. Coupled with a sales team that reportedly received 2-3% of the initial deposit, if we then throw in management fees, the investment managers of these pools would have to find investment opportunities that earn in the area of 12% P.A. just to break even after costs." As Browning rather drily notes: Looking at it dispassionately, there would be at first glance a temptation to manage the pool according to the Book of Madoff. Elsewhere in China retail sales figures disappointed, with July YoY coming in at 2.5% vs. previous 3.1% and expected 4.5%, followed by Industrial Production, July YoY actual 3.7% against previous 4.4% and expectations of 4.4%. Hedge Clippings has always been wary of Chinese data being shall we say "massaged", but our concerns were not helped (or were possibly confirmed) by a report that the numbers will no longer be published for the Chinese Youth Unemployment Rate - those unemployed between the ages of 16 and 24 - which is running at 21.3%. The official reason for the non-publication was the need to "further improve and optimise labour force survey statistics." Obviously not publishing bad news won't solve the problem, but it will save having to explain it (except to those unemployed). Maybe the unemployed youth could be conscripted and used to invade Taiwan? The Chinese authorities will no doubt act to revive their slowing economy, but longer term the social and demographic issues they face (population growth fell by 0.2% in 2023, having flatlined in 2022 in spite of the end of the One Child policy) are significant. According to this report, the UN forecasts that China's population will decline from 1.426 billion this year to 1.313 billion by 2050 and below 800 million by 2100. If you're interested in receiving John Browning's daily "Letter from Shanghai" you can register using this link https://mailchi.mp/ News & Insights Market Commentary - July | Glenmore Asset Management Investment Perspectives: Thinking about the cycle | Quay Global Investors July 2023 Performance News Bennelong Australian Equities Fund Delft Partners Global High Conviction Strategy Bennelong Long Short Equity Fund |
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