Greetings as we head towards Christmas!
The last few weeks seem to have been dominated by the news from Paris which was a shock to many of us who have had the opportunity to visit this beautiful City. It really does put a reality check on our values we stand for and what we hold dear to.
Markets had a reasonable few weeks with some good job numbers both here and in the US giving greater confidence that we may have a more sustainable economic base to grow from. The vivid memories of the GFC now 6 years ago are still fresh in many investors’ minds and caution is still very much evident in business decisions. That said, it does look like an interest rate rise in the US is imminent and should be taken as a positive that markets are slowly normalising. This has been anticipated for many months so in itself it’s not remarkable but it will start speculation about possible timing of future rate rises if any. The automatic stabilisers of a ‘higher’ US rate should be an increase in the US Dollar making their exports (which is approx. 50% of the revenue of their major companies) more expensive. It should also contribute to a further fall in our own currency making international investments more valuable and our exports more competitive. Well that’s the theory but no doubt there will be some surprises on the way.
Looking back over the year the longer term investment trends continued with the growth of mobile phone applications creating incredible opportunities across the globe. In many ways this is a great time to start a business and harness new ideas where efficiencies of skill not scale will determine the success of organisations. From an investing point of view this is exciting, as there are real opportunities to get in at the ground floor either directly via IPO’s or via one of our specialist Microcap Funds. Ideas that can be established in one part of the globe can be duplicated quickly around the world often with the same website; AIR BNB and UBER being two obvious examples of business’s looking to benefit from excess capacity in the accommodation and transport markets respectively. We do get allocations into many IPO’s as a Private Licensee and are building a separate data base to match the right clients with the right investment opportunities. This will again be managed via our client portal in the website www.virtueandpartners.com.au which we encourage you to visit.
Domestically there appears to be a ‘Turnbull Effect’ in business confidence with quite a few takeovers and new IPO’s taking place. While the overall market remains flat we are seeing better growth opportunities in industries such as Age Care, Technology and Health Care. The main four banks appear to be recovering after their recent capital raisings and lack lustre results with their dividend yield still acting as a compelling proxy for low term deposit rates. Meanwhile, the resources sector still looks very difficult for the foreseeable future and where possible we hold minimal direct shares in this part of the economy. A combination of better than expected employment figures and reasonable expectations for retail Christmas sales makes a fall in our own interest rates now most unlikely .There has been quite a tightening up of lending standards from the major banks overseen by APRA so you would expect that property price growth in the major cities would slow down and even modestly decline. This has been the historical experience at this stage of the property cycle as the graph below demonstrates.
As we move into a Federal Election next year there is significant debate around tax policy including the possibility of increasing the size and scope of the GST. This would, in part, fund the reduction of personal and company tax rates plus eliminate a raft of inefficient state based taxes. There is also some talk of changing the bases of taxing contributions into Superannuation and maybe some caps on the amount you can draw down tax free. These are important decisions and will impact on how we organise our financial affairs. As a prudent measure we are suggesting you bring forward any large one off untaxed contributions into super where you can as there may be some lifetime cap’s introduced as to how much money you can contribute. With Superannuation tax concessions now nearly as much as Centrelink Payments you would expect the current arrangements to be tightened up but not made retrospective. While it requires a significant amount of spending restraint and discipline to build up a self-sustaining account balance where the fund’s earnings more than cover the statutory drawdowns you really do have a wonderful opportunity to provide for your future retirement in a currently very generous tax free environment. We have plenty of calculators on the website to show you the expected effect on your super balances by making additional contributions yourself.
Best wishes
Tony
