client economic update - july 2013
DESCRIPTION
In July 2013 we held one of our regular client functions where we discussed the state of the Australian and global economies and our outlook for the next year. If you were unable to attend the function you can view the presentation below.TRANSCRIPT
Slide 1
Baiocchi Griffin Private Wealth
Economic and
Investment Markets Update
25th July 2013
Slide 2
This presentation and the associated discussion is
general in nature and does not take your individual
situation into account. You should not act on
anything contained herein, or discussed as a
consequence of the contents of this document, without
receiving personal financial advice from a suitably
qualified person such as a financial advisor.
General Advice Warning
Slide 3
What will be covered
A look at the global economic environment
&
Australia: the State of the Nation
&
An update on investment markets
Slide 4
Team BG-JTF!
Not investment related, but…
Slide 5
The global economy
The Good News…. The Bad News…. The Nobody-knows News…
The United States is in recovery Europe is still in trouble An uncertain future in China
Slide 6
Good news: The US economy is on the mend
Though still high by historical standards, unemployment in the US is heading in the right direction
Slide 7
Though it has been a long hard road
Slide 8
The US economy is growing strongly
The US economy has benefitted from a number of positive factors: - A weak US dollar has helped to grow exports
- Quantitative easing by the US Federal Reserve (‘money printing’) has kept interest rates low
- The housing market has finally begun to improve
Slide 9
The benefits of a weak currency
80
85
90
95
100
105
110
115
120
125
130
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US
Do
llar
Trad
e-W
eig
hte
d In
dex
Bill
ion
s o
f d
olla
rs
US Dollar (RHS)
US Exports to the rest of the world (LHS)
Slide 10
Europe is still a concern
Steep cuts to government spending, high government debt and a severe recession...
Slide 11
Austerity was seen as the solution
Enforced government austerity measures have not helped Europe’s cause and the voting public in many EU countries have had enough
Slide 12
There is light at the end of the tunnel
Italian Government borrowing costs Greek Government borrowing costs
Slide 13
China: a credit bubble waiting to pop?
Debt as a percentage of GDP has nearly doubled in less than five years
Slide 14
China’s situation looks familiar…
US household sector debt as a percentage of GDP
Notice the rapid increase prior to the global financial crisis, and the subsequent fall when the crisis struck.
Slide 15
China also has a demographics problem
In just over a decade, the number of working Chinese citizens will begin to decline.
Slide 16
Australia
Slide 17
Not so lucky anymore
The commodities price boom and mining investment boom have both ended, earlier than expected.
??
Slide 18
Another view of the mining slowdown
Future major projects are becoming scarce: Browse Basin $50bn Olympic Dam $20bn Port Hedland outer harbour $30bn Abbott Point $11bn Wandoan Coal $6bn Kooragang Island Coal Terminal $5bn
Slide 19
The last boom in commodities…
The 1971-74 commodities boom was the most recent boom prior to the current boom.
Slide 20
…ended badly for Australia
When the boom ended, unemployment rose from 2% to 10% over a nine year period.
The boom ends in 1975
Slide 21
Who benefited from the mining boom?
Slide 22
There are worrying signs
While low by international standards, unemployment is trending upwards. Recent new jobs have also tended to be part-time positions, viewed as ‘lower’ quality.
Slide 23
The RBA is doing what it can
Interest rates are at historic lows as the RBA tries to keep the economy growing May be an appropriate time to lock in your home loan, invest in variable rate investments
Slide 24
Economic growth is slowing
Slide 25
Households still cautious
Slide 26
The impact on markets
ASX All Ords 21 Jul 2012 to 22 Jul 2013
Despite a sluggish economy, up 17.92%
Slide 27
All Ordinaries: since 1985
A
1987 market crash
1994 bond market crash
Dot-com bubble bursts
Market all-time high
The ‘GFC’
Slide 28
Right place, right time
The strong investment performance was not widespread, but confined to a relatively small number of companies… Capital growth past 12 months
CBA 30.33% Westpac 28.62% ANZ 25.18% NAB 26.59% Telstra 24.81% Wesfarmers 23.10%
Slide 29
ASX Small Ordinaries
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
O.9% return for the past twelve months
Slide 30
Outlook
Given economic conditions, we expect the following: - One or two more interest rate cuts by the Reserve Bank
- Continued demand for high-yielding, dividend-paying investments
- Further falls in the value of the Australian dollar compared to the US dollar
- Slower economic growth in Australia for the next few years, offset by a pick-up
in housing as low interest rates take effect
Our investment approach is unchanged: a focus on income-earning investments, companies with strong balance sheets and healthy business models.
Slide 31
The Peel Street Index
An index comprised of all listed companies with a presence on Peel Street
• A hypothetical investment of $5,000 into each listed company with a presence
on Peel Street, beginning on 1 January 2000, or the date the company listed on the ASX
• All dividends re-invested
Slide 32
The Peel Street Index
Companies within the Peel Street Index:
AMP Limited ANZ Bank Commonwealth Bank Flight Centre IAG JB Hi-Fi NAB RCG Corporation (Athletes Foot) RuralCo Holdings
Singapore Telecom (Optus) Sonic Healthcare Specialty Fashion Suncorp Tabcorp Telstra Wesfarmers Westpac Bank
Slide 33
The Peel Street Index: Performance
Past five years – up 77.82% Since inception – up 172%
Slide 34
Thank you
Questions
?