…lot’s to talk about in this issue;
Banking Royal Commission
…or to give it its correct name; The Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry, has to date sensationally exposed the financial sector, in particular the banks, for not only poor financial advice, but also for serious breaches of laws and regulations in regard to their dealings with both customers and Australian regulators.
Further revelations will likely come as other ‘players’ are called to appear; including BT Financial, Aussie Home Loans, St George and others …
The Commission has heard first-hand evidence from customers who have suffered at the hands of poor and misleading advice. Already a number of senior executives have jumped and/or been replaced as a consequence…more are expected.
ASX – Is the market moving forward or going sideways?
We need to look at the market over two time-frames; the last 12 months and the trend since the beginning of 2018.
Since May 2017, the ASX All Ords has moved positively by around 8% (5761pts to 6216pts).
We saw strong growth from October 17 to December 17, however from January 18 on, market volatility has been significant resulting in little real movement – up around 0.9%.
A part of that has been a weakening in the financial sector with major bank share prices falling somewhat in the wake of the Commission news (ANZ -1.6%; CBA -12.5%; NAB -5.8%; WBC -1.7%). It is uncertain what further impact the Commission fall-out will have on major bank share prices. Against a background of increasing home loan arrears, some commentators are predicting more bad news in relation to a raft of interest only loans now due to revert to principal and interest, and the impact that may have on affected home owners and increasing pressure on arrears for the banks.
Your funds are largely protected from negative bank share prices due to the effect of spreading risk across the various ETFs we have invested in.
Global markets and the ‘Trump’ effect
In terms of market trends, we are seeing a similar effect on international markets; strong growth from May to December 2017, with a slowing effect since January 2018.
Global economics is both complex and fragile (meaning we don’t think anyone really knows what’s going to happen), but areas of high sensitivity remain. The ‘Euro-market’ is still dealing with ‘Brexit’ implications and some country’s economies continue to struggle; Political tensions with Russia and North Korea cast long shadows; Trump’s ‘freewheeling’ policies are having an impact on the global economy, in particular, the possibility of a trade war with China. Some US-based commentators are indicating that these policies are beginning to harm the US economy in terms of their ongoing trade position and rising oil prices.
Here we go again – an election budget!
We won’t spend too much time on this subject just now, but the recent federal budget has ignited the usual orgy of promises and counter-promises in prospect of the upcoming 2019 election.
This could likely have a further damping effect on the economy; we will watch and report as things develop.
The current outlook according to PFI
Given some of the above news, any one of a number of economic or political triggers, either overseas or at home, could well result in a serious downturn on Australian Markets.
With over 50% of funds invested in cash products and cash, we remain well placed to respond to any such event. In the meantime your account balances are receiving regular income from a diverse range of investments (i.e. no direct equities) while remaining somewhat quarantined from increasing issues in the banking sector.
As usual, please call William or Wayne directly to discuss any concerns or issues you may have – that’s what we are here for!