back to a new kind of normal: investment prospects for 2010 and beyond brian parker cfa, investment...
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Back to a new kind of normal: investment prospects for 2010 and beyond
Brian Parker CFA, Investment Strategist
MLC Investment Management
April 2010
2
This information has been provided by MLC Investments Limited (ABN 30 002 641 661), a member of the National Group, 105-153 Miller Street, North Sydney 2060. This material was prepared for advisers only, and should not be distributed to clients.
Any opinions expressed in this presentation constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this presentation is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this presentation. To the maximum extent permitted by law, we disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this presentation.
Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, unless otherwise specified.
This presentation contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice.
Before making any decisions on the basis of this presentation, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN 30 002 641 661) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.
General advice warning and disclaimer – adviser audiences
3
This information has been provided by MLC Investments Limited (ABN 30 002 641 661), a member of the National Group, 105-153 Miller Street, North Sydney 2060.
Any opinions expressed in this presentation constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this presentation is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this presentation. To the maximum extent permitted by law, we disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this presentation.
Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, unless otherwise stated.
This presentation contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice. Before making any decisions on the basis of this presentation, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN 30 002 641 661) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.
General advice warning and disclaimer – client audiences
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The new ‘normal’
• Slower rates of developed world growth (de-leveraging process)• A more conservative investment environment (transparency, liquidity)• Modest investment returns• Emerging markets drive global growth (many EMs had a good GFC!)
5
The post-Lehman environment was particularly harsh on trade dependant economies
• Aggressive de-stocking, trade finance difficulties had a major impact on the world’s most open economies (e.g. Asia)
• The bounce in exports and production has been significant, but how sustainable is it?
Source: Datastream, MLC Investment Management.. Open economies are a simpleAverage of data for Japan, Germany, Singapore,Taiwan. Less open economies areAn average of India, UK, and US.
Industrial output - selected open vs less-open economies
75
80
85
90
95
100
105
110
Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010
Less-openeconomiesOpeneconomies
Index - Q2 2008 equals 100
6
Manufacturing, consumer surveys looking better
G3 Manufacturing confidence
-4
-3
-2
-1
0
1
2
3
Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009
US
Euro-zone
Japan
Standard deviation from 3yr average
G3 Consumer confidence
-4
-3
-2
-1
0
1
2
3
Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009
US
Euro-zone
Japan
Standard deviation from 3yr average
Source: Datastream, MLC Investment Management
7
Early stage recovery in consumer and business spending?
Source: Datastream, MLC Investment Management
Orders data consistent with an investment recovery
50
60
70
80
90
100
110
120
130
Q3 2006 Q3 2007 Q3 2008 Q3 2009
US
Japan
Germany
Capital goods orders. Q3 2006 equals 100
Retail sales picking up in US, but not in Japan, Germany
92
94
96
98
100
102
104
106
108
Q3 2006 Q3 2007 Q3 2008 Q3 2009
US
Japan
Germany
Core* retail sales. Q3 2006 equals 100
*Excluding autos and petrol
8
US wage and salary incomes are rising..
Rising wage and salary payments are a crucial indication that consumers have more to rely on that just hand-outs and temporary incentives to sustain spending growth
Manufacturing
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
Jun-07 Mar-08 Dec-08 Sep-09
m/m% (with 3mth moving average)
Services
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jun-07 Mar-08 Dec-08 Sep-09
m/m% (with 3mth moving average)
Private sector
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jun-07 Mar-08 Dec-08 Sep-09
m/m% (with 3mth moving average)
Source: Datastream, MLC Investment Management
9
..as the US working week lengthens and jobs start to re-appear
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
32.0
32.5
33.0
33.5
34.0
34.5
35.0
Private payrolls (lhs)
Average hours worked (rhs)
Hours3 mth % change
Source: Datastream
10
Problem: It’s a de-leveraging cycle, stupid..
..and we have little way of knowing how far it needs to go, nor how long it will take.
Source: Datastream, ABS
English speaking economies household debt
20
40
60
80
100
120
Q1 1980 Q1 1989 Q1 1998 Q1 2007
Australia US UK
Household debt as a % of GDP
Saving rates are rising in the English speaking world
-4
-2
0
2
4
6
8
10
12
14
Q4 1990 Q4 1996 Q4 2002 Q4 2008
Australia US UK
Household saving as % of disposable income
11
However, the emerging world appears to have few such issues
Periods of high stress for emerging markets explain poor absolute and relative economic performance vs the developed world. The Stress index is based on external debt, budget deficit, credit growth vs GDP, and the current A/c balance.
12
Are we really bullet-proof?
Source: Datastream, Bloomberg
Australia's economic growth has outstripped the G4...
-10
-8
-6
-4
-2
0
2
4
6
8
Q1 2000 Q1 2003 Q1 2006 Q1 2009
US Europe Japan
UK Australia
Real GDP - annual growth (%)
…and our unemployment rate has not risen as far as elsewhere
0
2
4
6
8
10
12
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09
US Europe Japan
UK Australia
Unemployment rates (%)
13
Much of the debate about Australia’s public finances is over-the-top
-40
-20
0
20
40
60
80
100
120
2008 2009 2010 2011
General Govt net liabilities as a % of GDP
Source: Datastream, OECD
Market developments and prospects
15
Recovery, as Armageddon is taken off the table
50
60
70
80
90
100
110
Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
Australia
Developed mkts
Emerging mkts
Share price indices - end June 2008 equals 100
Source: Datastream
16
Recovery, as Armageddon is taken off the table
50
60
70
80
90
100
110
Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
AustraliaDeveloped mktsEmerging mkts
Share price indices - end June 2008 equals 100
Last observation is 5 April 2010
Source: Datastream
17
US Corporate debt spreads have narrowed dramatically...
Source: Datastream. Last observation is 5 April 2010
Barclays high yield spread over Treasuries
0
250
500
750
1000
1250
1500
1750
2000
2250
Mar-88 Mar-92 Mar-96 Mar-00 Mar-04 Mar-08
Basis points
Investment grade debt spreads over Treasuries
-100
0
100
200
300
400
500
600
700
Mar-80 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 Mar-10
Baa rated corporates
Aaa rated corporates
Basis points
The easy gains have been made; it gets tougher from here