Monday, 16 February 2015 05:52

What is Income Protection and who should have it?

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Income Protection is simply insurance so that in the event of not being able to work due to sickness or accident, you continue to receive up to 75% of your income.


The key aspects of Income Protection insurance are the benefit period, which is the maximum length of time that a claim can be paid.  Typically benefit periods range from 2 and 5 years or until age 65. 


The other important decision when arranging this insurance is selecting the waiting period.  This is the length of time that must pass before a claim is paid.  Common waiting periods are 14, 30 or 90 days, but it is also possible to select longer periods.  Obviously these selections effect the cost of the insurance.


Incidentally, many people choose to own their income protection through superannuation, so their superannuation pays for the premiums rather than normal household cash flow.



We act as brokers, to find the best income protection insurance available for you.  Part of our service also includes handling claims for you.


If you would like an instant quote, please visit the page Personal Insurance - Instant Quotes.  After completing the 3 entry screens you will receive an onscreen quote from Australia's leading insurers.

Tuesday, 03 February 2015 20:37

Greek Debt - Who is on the hook

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We have sourced this information from an excellent article from Bloomberg.  Understanding who owns the Greek debt is critical in determining whether the Greek elections are likely to cause contagion in the financial system.




(Bloomberg) -- Greece’s anti-bailout governing coalition wants to reduce the country’s debt burden. Who’s on the hook if they succeed?

Prime Minister Alexis Tsipras has pledged to repay in full obligations to the International Monetary Fund and the European Central Bank. Finance Minister Yanis Varoufakis outlined plans to swap some debt into new securities and link repayment with economic growth. Both have said private investors won’t be asked to shoulder additional losses after taking the hit in two restructurings since the start of the euro financial crisis.

Euro-region governments and the crisis-fighting fund they set up in 2010 are owed almost 195 billion euros ($221 billion) by Greece, mostly in emergency loans. That’s about 62 percent of the total debt and compares with 17 percent held by private investors.


Governments and national central banks are also contributors to the ECB and the IMF so taxpayers would be exposed should Greece go back on its pledge to make those creditors whole.

Here’s a list of frequently asked questions about Greece’s debt profile. The answers are based on the latest available data from the country’s Finance Ministry and Statistical Authority.

Q: How much does Greece owe? A: Greece’s total public debt amounted to 315.5 billion euros at the end of the third quarter.

Q: Who is Greece’s largest creditor? A: The European Financial Stability Facility, the euro area’s original crisis-fighting fund, which has lent the country 141.8 billion euros, and hence owns about 45 percent of its debt. The average maturity of EFSF loans to Greece is just over 32 years, with the last payment due in 2053, according to the EFSF’s website. Greece pays about 1.5 percent on those loans, comparable to what a AAA rated country would be charged. The rate fluctuates based on the EFSF’s own borrowing costs.

Q: When is Greece scheduled to start paying principal on the EFSF loans? A: Not until 2023. It also enjoys an interest deferral on most of the loan. The exception is a 35.5 billion-euro chunk that was paid to private investors in 2012 to persuade them to accept the restructuring. Because of the grace period already in place, any writedown on the debt held by the EFSF will have relatively little impact in easing the Greece’s debt-servicing costs over the next eight years.

Q: How much of Greece’s debt trades among investors? A: After the biggest debt-restructuring in history, in which securities totaling about 200 billion euros suffered losses, Greece’s tradeable debt is now just 67.5 billion euros, 82 billion euros if treasury bills are also included. The ECB and euro-area central banks currently own about 27 billion euros of Greek bonds, according to data compiled by Bloomberg, comprising 40 percent of the total outstanding market.

Q: How about the ECB? A: During 2015, Greece is set to repay 6.6 billion euros of bonds held by the ECB. By year-end the ECB would own 20.4 billion euros out of a total 60.5 billion euros of tradeable bonds, assuming no new issuances by Greece and other small bonds are repaid as they mature.

Q: Wasn’t the ECB debt already restructured once? A: Yes, albeit indirectly. The ECB and euro-area central banks bought Greek government bonds at the peak of the crisis at prices below their nominal value. While Greece is required to repay these bonds at their nominal value, the central banks would then return the profits they made on the transactions to their shareholders, which are euro-area member states.

The ECB has always resisted agreeing to a voluntary haircut on its debt because that would be considered monetary financing, which is banned under EU law.

Q: How does the payback work? A: These shareholders must give Greece back this profit, as long as the country complies with its bailout agreements, according to a euro area finance ministers decision taken in November 2012. In this way, Greece ends up repaying less than the full amount. In 2014, Greece was scheduled to receive about 2 billion euros in ECB-profit returns. It never did, as the bailout review was never completed.

Q: Treasury bills are tradeable, how many are there? A: Almost 15 billion euros of Greece’s debt consists of short-term T-bills, which the country continuously rolls over. This covers financing needs while its bailout review remains stalled, and no aid disbursements are being made from the euro area and the IMF.

Q: How much does Greece owe to the IMF? A: Almost 25 billion euros, according to the fund’s website. The IMF’s policy is to never restructure its loans, and Tsipras said he doesn’t intend to test the fund’s resolve. Greece is scheduled to repay about 19.4 billion euros to the IMF by 2019, and another 6.4 billion euros between 2020 and 2024.

Q: Does Greece pay interest? A: The interest paid on IMF loans is also not fixed, and depends on the amount outstanding and the length of time since the money was advanced. The average rate varies between 3 percent and 4 percent, according to a person familiar with the matter.

Q: What about bilateral loans? A: In May 2010, euro-area members agreed to provide bilateral loans pooled by the European Commission, after Greece was shut off from international bond markets. The so-called Greek Loan Facility included commitments of 80 billion euros to be disbursed between May 2010 and June 2013.

This was eventually reduced by 2.7 billion euros when Slovakia decided not to participate and Ireland and Portugal stepped down after they requested their own rescues, according to the Commission’s website. Only 52.9 billion euros were disbursed before the GLF facility was replaced by the EFSF bailout.

Tsipras’s commitment to repay Greek loans didn’t include EFSF or GLF loans.

Q: How much could each creditor nation lose? A: A precise calculation of the potential liabilities of each member-state would have to take into account the impact of contagion from a Greek default, the consequences for European banks and the precise amount for which Greece will forsake repayment.

Q: But haven´t some made estimates? A: Some countries have done their own math. French Finance Minister Michel Sapin says his country’s exposure is 42 billion euros.

Finland, which demanded collateral for its loans to Greece, has a total liability of 5.4 billion euros, according to Finance Ministry data and Bloomberg calculations, including the country’s contribution to the first and second bailouts and its share of the IMF loans.

The Netherlands contributed 3.2 billion euros in the first bailout loan and the Dutch guarantees on the EFSF loans and interest total 33.6 billion euros.

NOTE: These figures are approximate because a small part of Greece’s debt is denominated in currencies other than euros or in the IMF’s Special Drawing Rights. The breakdown doesn’t include some state guarantees for liabilities of government-owned entities, including public utilities, or European Investment Bank loans, which were channeled to infrastructure projects and financing of businesses.

Syriza sweeps to victory in Greek election, promising an end to 'humiliation'

By Spyros Economides, London School of Economics and Political Science

As had been widely predicted, the left-wing party Syriza has secured a victory in the Greek election. Having finished with just short of enough seats in parliament for a majority, leader Alexis Tsipras has agreed to form an anti-austerity coalition with the right-wing party Greek Independents.

Throughout the short campaign, it appeared the relative newcomer to Greek politics, led by the charismatic Tsipras, would win. Now it appears he has done so by a significant margin.

Speaking in the wake of the victory, Tsipras said the vote would end years of “destructive austerity, fear and authoritarianism” and that his country could now leave behind the “humiliation” it has suffered.

The last half of 2014, which became essentially a prolonged general election campaign, saw the Syriza leadership (especially Alexis Tsipras) toning down its extreme rhetoric. Instead of pushing for radical reform, it focused on promising simply to abandon austerity and challenge Greece’s external debt commitments.

Syriza has pledged to tackle what it calls Greece’s “humanitarian crisis”. It plans to feed and house the worst affected by the crisis, providing them with free electricity and medication, and reintroducing a higher minimum wage.

Internationally, it has promised to bring Greece’s creditors to the negotiating table, with the intention of thrashing out a deal more favourable to Greece. In essence, this will amount to requesting debt redemption, or a “haircut”.

This toned-down platform may have won Syriza the election by attracting enough of the political centre, but it may not be enough to sustain the support of the more radical elements in the party’s leadership and political base.

The worry is that the whiff of power may not be strong enough to placate radical elements, who really do want radical domestic policies. They would like to see austerity abandoned and replaced by increased government spending across the board, and the restitution of public salaries and pensions. The public sector workers made redundant over the past four years would be re-employed and state property nationalised.

Greek Prime Minister Antonis Samaras concedes defeat. EPA

They also want a more confrontational policy towards Greece’s creditors and the so-called troika (the EU, the European Central Bank and the International Monetary Fund). This could ultimately result in the dreaded Grexit.

If Syriza’s more radical elements feel betrayed by watered-down policies, the party faces the prospect of internal division, and Greece could soon see social unrest and demonstrations. That would weaken the new government dramatically, and could further destabilise the country at a very delicate moment.

Despite the scene of triumph, Greece is entering a period of deep uncertainty, and Syriza’s victory may indeed turn out to be pyrrhic. It is confronted by the immense task of governing at a time when Greece may be ungovernable, while also facing a potentially divisive internal struggle. International partners have also made it clear that the new Greek government, whatever its makeup, will have to honour the country’s existing agreements and commitments.

If Greece’s international creditors don’t come through with quick concessions, or if radical opposition rears its head against Syriza’s more moderate approach, this could trigger an uncontrollable reaction based on fear of uncertainty. That could lead to an accidental default, which would have disastrous consequences for Greece.

The Conversation

This article was originally published on The Conversation. Read the original article.

Monday, 26 January 2015 03:49

Australian Housing .... still expensive

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In the long running obession that Australians have for the property market, we have sourced the latest affordability charts that outline housing affordability in Australia (a key measure of price), relative to other countries property markets.  The key measure used is the price of property relative to income.  The higher the multiple of income, the higher the price.

The first chart shows that Australia's property market is far more attractive than Hong Kong and even New Zealand.  Measured against Canada, a country that has many similarities to Australia, our market looks stretched.

To put this chart though into more perspective, let's consider what sort of levels are considered unaffordable.  Here is a table showing broadly accepted definitions.

Finally the table below shows the numbers on a "State by State" basis.


"Hong Kong's Median Multiple of 17.0 was the highest recorded (least affordable) in the 11 years of the Demographia International Housing Affordability Survey. Again, Vancouver was second only to Hong Kong, with a Median Multiple of 10.6. Housing affordability in Sydney deteriorated to a Median Multiple of 9.8, which was followed by San Francisco and San Jose (each 9.2). Melbourne had a Median Multiple of 8.7 and London (Greater London Authority) 8.5. Three other markets had Median Multiples of 8.0 or above, including San Diego (8.3), Auckland (8.2) and Los Angeles (8.0)."

Jeremy Grantham, a world recognised investor with GMO remains concerned at the levels of the Australian property market and we would encourgage investors to exercise caution in assuming the run up in property prices will be a permanent feature of the Australian economy.


Note:  Charts sourced from Mike Shedlock "Mish's Financial Trend Analysis"


This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306







Thursday, 04 December 2014 07:51

Next rate move DOWN

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BillEvans small headshot WIBIQWe have revised our interest rate outlook. We still expect rates to be on the rise in 2016 as the world economy gathers considerable momentum but we now expect the RBA to cut rates further in the early months of 2015 in an effort to bolster domestic demand and lower the AUD before evidence around the world economy becomes clearer around the middle of the year. 

We expect a 25bp rate cut at the February Board meeting and another one to follow in March. 

Our initial response to the September quarter national accounts was that the Reserve Bank would accept that the dismal growth profile was due to a lumpy fall in government spending; a temporary pause in the dwelling investment upswing; a sharper than expected drop in mining investment; and the fall in the terms of trade, which was already known to the policy makers. 

However on reflection we think that the weakness in the accounts – including falling inflation; contracting national incomes; and a loss in growth momentum – coupled with further sharp falls in commodity prices, continued weakness in consumer sentiment – which has failed to recover from its post-Budget fall – and the prospect of a further significant negative shock to confidence will be enough to prompt the RBA to use some of their remaining policy ‘scope’ and lower rates further.

At a dinner for the Australian Business Economists on November 25 Deputy Governor Lowe emphasised that he expected that monetary policy still worked, even with rates at record low levels, and that if the outlook were to deteriorate sufficiently, policy could be eased further. The risks embodied in the national accounts – where all states but NSW contracted, national income contracted for a second consecutive quarter (widely reported as an ‘income recession’) and inflationary pressures eased markedly – would be sufficient for the Bank to revise down its already downbeat outlook for 2015. 

We have lowered our GDP forecast for 2015 from 3.2% to 2.7% (below trend) and we expect that the RBA will make a similar adjustment. 

Other risks around the impact of the national accounts on both business and consumer confidence are real. The Bank will receive more evidence on these issues from two more reports on consumer and business confidence and two employment reports before the February meeting. It is our expectation that the risks to these numbers are to the downside. Meanwhile unemployment looks set to rise further near term.

Until recently it appeared that the pursuit of a lower AUD and providing improved cash flow for companies and households with a mortgage which would result from lower rates, was taking a ‘back seat’ to expectations that low rates would eventually see the non-mining upturn strengthen and concerns around overstimulating the housing market. However, the RBA has made a clear shift in rhetoric in recent months, returning to the more strident language on the currency used late last year and softening concerns around housing. The pronounced and sustained weakness in the terms of trade over the second half of this year obviously lowers the fair value of the Australian dollar, and the RBA’s recent commentaries clearly imply that in their minds the currency is far from reflecting this in full, despite recent losses. In addition, ongoing QE in Japan and Europe is indicative of both global disinflation pressures and a valuation ‘premium’ for exchange rates with conventional policies.

On housing, the RBA has noted a clear moderation in price appreciation in recent months. The Bank also has some scope to use macro prudential tools to contain any further sharp upswing in investor housing activity, if it were to occur. 

Of course the next Board meeting is not until February 3 and much could change over that period. In particular, commodity prices – which have shown sharp swings in the past – could post a strong recovery from recent sharp falls. However, while we expect commodity prices to be lifting over the course of 2015, the picture on prices is likely to still be unclear in the March quarter. In fact we expect commodity prices to fall further in the March quarter prior to lifting through the second half of 2015. The Lunar New Year which begins on February 19th in 2015, adds another layer of complexity with the relative strength of the seasonal bounce back in Chinese economic activity not likely to be known to the RBA by the February meeting. That will leave them to peruse the iron ore price, Q4 Chinese GDP and the November/December partial data to aid their decision-making. We do not expect a short term positive impulse that would alter their present mindset, even though we do expect that Chinese growth will firm as the 2015 year unfolds. 

It is also important to note the following points : 

  1. The minutes to the December RBA decision – to be released on December 16 – could provide some guidance to the Bank’s thinking. This will give a more detailed account of the Board’s assessment of risks and ‘colour’ around their thinking. 

  2. The February Board meeting is likely to be the preferred timing for the Bank. It comes after the release of what we expect to be a soft December quarter inflation report and it allows the Bank to use the 70 page quarterly Statement on Monetary Policy, released 3 days later, to explain its decision. We do not think that the Bank would make such a reversal in policy for just one move. We expect the cut would be followed by a second cut in the following month (March) prior to another period of stability.

  1. We do not think that the Bank would make such a reversal in policy for just one move. We expect the cut would be followed by a second cut in the following month (March) prior to another period of stability. 

  2. Fiscal policy will remain a headwind for the economy. Although the Treasurer has committed to not introducing any harsh new cuts in the Mid–Year Economic and Fiscal Outlook, which is likely to be released in the week beginning December 14, the evidence and the rhetoric around a sharply deteriorating fiscal position will continue to unnerve consumers and businesses. 

  3. The Reserve Bank will have little or no new information on housing between now and its February meeting with the market essentially closed through Dec-Jan meaning mid-Feb will be earliest next reading on conditions. 

  4. It is our view that the Bank will be ‘surprised’ by the pace of recovery in the world economy in the second half of 2015. That will preclude any further moves. Australia’s terms of trade will improve for a period and the key issues which the Bank has been concerned about will begin to dissipate as the terms of trade lift. By mid-2016 rates will be on the rise , taking the lead from the US Federal Reserve which will begin its tightening cycle by September 2015. 

Implications for the Markets

Fixed Rates 

Markets are already pricing in a full cut of 25bps by mid-2015. Certainly any move to bring the cut forward by the RBA will lead to markets pricing in another cut. 

However swap rates are unlikely to fall too much further (the 3 year swap rate is currently around 2.6%) since the markets will be focussing on the expected first hike by the US Fed, which we anticipate is timed for September. Anticipation of that event is almost certain to trigger a rise in fixed rates in the US. That is likely to contain any further falls in fixed rates when the RBA moves. 

We are also at odds with the market in anticipating rate hikes from the June quarter in 2016 as the Australian economy derives a considerable boost from a strengthening world economy. 

The Australian Dollar 

We had been expecting to see a lift in commodity prices by year’s end but are now delaying the timing of that recovery until mid- 2015. This means that the low point in the AUD is likely to be around the June quarter, in the aftermath of the rate cuts and amid both a strengthening USD as markets focus on the first Fed tightening; and ongoing weakness in the Euro and the Yen as the ECB and BoJ embrace aggressive QE. 

As indicated above, the RBA views the currency as overvalued and would like to see it fall further. At a minimum, it would like to hold on to the losses already recorded. Westpac puts current AUD/USD fair value in the 79-81¢ range – an estimate that incorporates both the cuts introduced into our forecasts today and a lower trajectory for commodity prices out to mid-2015. 

In that scenario we see the low point of the AUD as around USD 0.80 by June 2015. Our previous forecasts were predicated on stable interest rates, higher commodity prices and a premium to fair value. We have altered each assumption in an ‘AUD negative’ direction, with the fair value premium removed from our expectations for the first time in the QE era. 

A strengthening world economy; rising commodity prices; RBA on hold with the next move up; and Australian interest rates still comfortably above US rates are likely to see AUD strengthen through the second half of 2015 and into 2016. 

As we have seen in previous episodes of Fed hikes the highly preemptive foreign exchange markets are likely to have moved largely before the first ‘well-signalled’ move. 

In those circumstances we expect the AUD will finish 2015 at around USD 0.85 and continue to benefit from strong world growth; rising commodity prices; and, rising AUD rates from the June quarter. 

Bill Evans

Chief Economist - Westpac


Wednesday, 03 December 2014 05:05

Iron Ore breakeven levels

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Bell Potter have run the numbers on the breakeven levels, measuring their cost of prodcuction for the mid tier Iron Ore miners and the results are as follows:


Fortescue Metals US$66 per tonne

BC Iron US$77 per tonne

Atlas Iron US$82 per tonne.


Currently the spot price for iron ore is around US$70 per tonne.


From a balance sheet perspective, BC Iron has net cash of $78m, Atlas Iron has net debt of $118m and Fortescue has net debt of US$6.9bn.


Atlas and BC Iron are cash flow negative on these numbers, while Fortescue can adequately servie their debt at iron ore prices above US$66 per tonne.


We fail to see what news flow is likely to come that would drive up the iron ore price, particularly given the changes underway in the Chinese economy.


Investors unlikely to have a happy time playing the iron ore game for sometime.


Wednesday, 03 December 2014 03:18

Australian retailers and property trusts at risk

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Andrew Fleming, Deputy Head of Australian Equities at Schroders says Australian retailers and property trusts are massively over-investing in physical shopping centres and under-investing in online channels when compared to their US counterparts (see chart). Fleming says this over-investment “increases the operating leverage pretty materially for both the retailer and for the property trusts that tend to own most of this space. Australian retailers are effectively betting that the US online experience isn’t replicated here. To us they’re big risks. We think it’s likely that ultimately that US experience in terms of online distribution is replicated here and that secondly the risk that they’re stranded assets in shopping centres is much higher than perhaps is countenanced with current valuations.”

Tuesday, 02 December 2014 07:53

2015 Investment Insights

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What does the future hold for investors in 2015?


We put this question to Kerr Neilson (CEO Platinum Asset Management) when we met with him recently.  Here is our 6 minute interview.


Of course Kerr Neilson requires little introduction as one of Australia's best investors, recently nominated in the top 100 global investors.  We have also provided a transcript below.



















Mark Draper: Here with Kerr Neilson, CEO of Platinum Asset Management. Kerr, thank you for joining us.


Kerr Neilson: Thank you.


Mark Draper: What do you think are the key things that investors particularly from the Australian perspective should be thinking about in 2015, in the year ahead?


Kerr Neilson: I think the Aussie currency is a soft currency so you are probably best to push in for people to put money abroad. And if we look at the opportunities, we think that there is quite a big opportunity in Asia, so that is China and India and even Korea and Japan would be okay because the market is benefiting from the weakening yen so we think the big money should be in Asia and we are not particularly negative on the high valuation western markets, we’re thinking…


Mark Draper: So such as America?


Kerr Neilson: Yes, towards the upper end of the valuation bands and but I think we still get surprises from the financial system in Europe, strangely enough. So the banks there are still very attractive, we think and in the States we like some of the old technology, that look like they are broken but they are exactly the duration plays the market is already looking for and yet the price is at less than the market average, so we quite like them.


Mark Draper: And in terms of potential surprises for 2015, if you were to pick an x factor, what would keep you awake at night.


Kerr Neilson: I think that all price, if there were some interruptions surprise, that would be a nasty shock. I don’t think it is necessarily going to come from interest rates moving up sharply, I don’t think that is in prospect, really. If we start moving up in the States, in real terms end and accelerate that would be quite a setback, I think, for corporate profitability because that is where the costs squeeze would be and I wouldn’t be able to get the prices up. So, in many cases, so you get an idea on margins, in Europe I think most of the bad news is out, I don’t think we have any more concerns about the banks, we will have a lot of chatter about falling prices so called inflation but in fact the worst side of that is real incomes do improve and gradually I think men, and it has been, that all those countries are in surplus. So it is not as if…


Mark Draper: It’s including Greece too isn’t it?


Kerr Neilson: Greece and places like Spain, you’ve seen some depreciation, a big stock of unsold houses and in Ireland where there have been huge cuts in living standards, something like 15% cut in real incomes, the place is just flying. You know 6% growth, property prices are up by 20%.


Mark Draper: Yep. So, broadly, you’re optimistic for 2015 by the sound of it with a particular skew towards Asian story on valuation, but it is more than the valuation, they can also grow.


Kerr Neilson: That is correct. These are parts of the world which will grow twice the rates of the world in general and in fact drag the world upwards. There is obviously a slight slow in China, the property markets will remain quite comatose. Interestingly, in the big cities prices have not come down very much and now they have made concessions to people having, if you have paid all your mortgage you are treated as a first time buyer so you can buy a second property and you only have to put down 30%, so that is stabilising the market which is not to say there is not plenty of over supply in the smaller cities. So property is a bit of a drag because it was a big growth, investment will probably slow and savings will remain high because the social security network is still not in place, so it is a country that will have slowing growth. The need for new jobs is diminishing too, you know in ten years to 2013, 160 million people entered the workforce, but in the next ten years 40 million will come into the workforce so the pressure on jobs and for concerns about the environment has diminished.


Mark Draper: Oh, ok. And you’re mainly playing China through the consumer side in any case rather than the investment as in building side


Kerr Neilson: A mix, a mix. Yeah, I’m a not mad about property. There are things like a truck company we can, a truck engine company which also has a truck subsidiary, which is an interesting story which is why Weichai and you know it’s less than ten times earnings, it’s got a fantastic growth rate, it’s got a clean balance sheet and dominates the diesel engine market, it nearly produces as many engines as Cummins, the great American company. I like that and we sort of looking at these drink companies as you say, these white spirit drink companies and they are doing fine.. There were concerns that the luxury goods area would fade in terms of consumption but in fact, they are holding up quite well and the turnaround could be huge and you’re buying these on 12, 14 times which is for a packaged goods company, making huge profits over 20% for total cap is cheap. And then there are railways, there are all sorts of things we can buy and this is being facilitated by the through trade so where we put on an order in Hong Kong with a broker there, we actually have the access to their market, their share market.


Mark Draper: Which hasn’t been possible…


Kerr Neilson: It hasn’t been possible. We had a quota but this is now pretty much almost an infinite access, so where we have started to see an opening up of their exchange control, this is the mechanism that they are starting to use. And every day the quota is set up at about two billion US dollars for money going in and about 1.8 billion dollars coming out and thus far is not  being fully used, so we can buy whatever we like, pretty much, at the moment.



This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306


Thursday, 27 November 2014 22:44

Banks Tighten Term Deposit Rules

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Investment reviewAustralian Banks with effect from 1st January 2015 will require investors to provide 30 days notice if they wish to break the term of an existing term deposit.


Until now, banks have offered various penalties for the ability to break term deposits, but from next year there will be uniformity in requiring clients to provide notice to break term.


The advantage of this is that it will allow the banks to better manage their funding requirements.


The chief executive of Curve Securities, Andrew Murray, said banks were making the changes in response to new rules designed to make sure banks have enough liquid assets to survive 30 days of financial turmoil.


Under the so-called liquidity coverage ratio (LCR), which is commencing in January, banks must hold enough liquid assets to cover their lending outflows for a month of turmoil.


"They need to prove they've got enough funds to withstand a thirty-day run," he said.


Mr Murray said the change could be significant for retail investors who needed the flexibility to withdraw term deposit funds at short notice.

"In the past they've been able to break their deposits reasonably easily, the banks have been pretty flexible. But now they can't," said Mr Murray, who manages almost $4 billion in deposit products on behalf  councils, credit unions and universities.


It is understood the change will apply to all term deposits, including those issued before the rules came into effect.


The LCR, which the Australian Prudential Regulation Authority will implement from January, will mean banks incur extra costs when managing money that could be withdrawn at short notice.


Term deposits will not be the only products affected. Mr Murray said this may also make online saver accounts less attractive to banks, pushing down the bonus levels of interest that are often paid.


 This is an important change in banking procedures and one that investors should take notice of.

Sunday, 23 November 2014 05:47

India - the land of opportunity

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Mark Draper (GEM Capital) caught up with Andrew Clifford (Chief Investment Officer - Platinum Asset Management) at a conference recently to discuss his recent investment research tour of India.


Platinum Asset Management are extremely bullish on India following the leadership change.


Here is a podcast of the interview, followed by the transcript.





Mark Draper: Mark Draper from Gem Capital here with Andrew Clifford, chief investment officer from Platinum Asset Management. Jet lag from India, just come in a day or so, thanks for joining us Andrew.

Andrew Clifford: Yeah, not at all.

Mark Draper: And you’re really excited about India. You think it is a very interesting investment prospect going forward. Why do you think that?

Andrew Clifford: Look India has been a place of enormous potential that we’ve all known for a while, but the big issue has been, you know the basic inability of the government to set up the right environment for investment to occur, and to a large extent that has been about the government unable to get approvals through their own system and so forth. And a lot of this comes back to ultimately bureaucracy which is incredibly inefficient but also with a fair degree of corruption within it. So, what we have in this new government is a prime minister, Mr Modi, who has won clearly has a vision that investment is required to get this country moving. He is able to sell that message to the electorate very convincingly that that is good for all Indians, it’s not just being about being pro-business and he has the experiences of a politician as the chief minister for 10 years of Gujurat to understand this system and know how to make it work, with some very interesting ideas about how you to clean the system up.

Mark Draper: And one of those ideas involves the national security card, like the I.D, not a card but the I.D system. Are you able to talk us through that?

Andrew Clifford: Yes. Well, there are probably a couple of elements which are quite interesting here. One is Modi talks about digitalising India and so if you can imagine that for any sort of thing that you want to do such as build a house, start up a business, there are a whole lot of permits, licences that you need and one comment we got from one business person was that in reality it wasn’t very different from the US or Australia, we need those but they are in formality but whereas in India each one of those things we need to do, you have got another bureaucrat to deal with or another government official. By making this an internet process, based process, you essentially, you may still need someone to look at it at the end of the day to approve it but you’re not meeting them face to face where there are time constraints put on the official dealing with it and they can either accept or reject the application based on its merits alone, there is not real opportunity then for them to sort of fleece a little bit of cash.

Mark Draper: Yes.

Andrew Clifford: So that’s one, and that’s clearly something they’re heading down in all levels of government and it’s very much one of his things, his things even the ministers or ministerial level is that a file shouldn’t be sitting on your desk for more than a certain number of days because if it is you’re not making a decision and that not making a decision often has a lot to do with saying what money making opportunities are in there for you.

Mark Draper: Yep.

Andrew Clifford: The I.D card itself is very interesting so there are now 700 million Indians with a unique identification which is simply by your 10 fingerprints and an iris scan of both your eyes and you’re given a 12 digit number.

Mark Draper: Right.

Andrew Clifford: And it has enormous possibility so…

Mark Draper: Almost sounds like something out of James Bond doesn’t it.

Andrew Clifford: Well, the interesting thing is that in our society, you would feel very wary about such an identification and what the government’s going to do with it. Here it is about protecting you from the system…

Mark Draper: From the bureaucracy.

Andrew Clifford: So, for example, a very simple thing you can walk into a bank branch now and type your 12 digit number in, give them your fingerprint and within two minutes, you’ve got a bank account. Simple as that. What does that allow you to do, well it means that rather than having to go, for example, off to a government office to get your monthly pension, if that’s what you’re doing, it can be paid directly to your account and is paid directly to your account. So, again, when you went to grab that pension, it was something that again, you may not have got the full amount of, again some of it was kept back by the guy handing out the money.

Mark Draper: Yep.

Andrew Clifford: So, that’s a simple example, but in India there’s a lot of subsides subsidised, LPG gas, subsidised kerosene, there are various effectively social security type benefits and all of these things can be tied down to your I.D number and what they are finding is that where they have done that, then again most of these things are only on an experimental basis, none of these things have been rolled out on the country yet, but where they have done it and said okay you’re not going to get your pension unless you sign up using their I.D, they have found that there’s only 70% of the people are real.

Mark Draper: Right.

Andrew Clifford: The rest are ghost accounts.  So there are massive benefits in terms of cutting down on the amount of subsides and what goes out in the system. So there are some quite clever things that can be done with this overtime.

Mark Draper: What do you think the impact on foreign investment to India of clamping down on corruption and  improving the system and as well as encouraging investment, what’s your view on where that’s likely to go?

Andrew Clifford: Well, it’s quite interesting because Modi, I think, is now perhaps the most travelled Indian prime minister already and very much the focus of all his travels have been about trade and investment and I think it is interesting because the multi-nationals are very wary of investing in India for various reasons, you know the tax offices have been quite punitive in their dealings with, and unfair, dealing with foreigners, so there’s a great deal of wariness and her is aware of this and knows that we need to get things set up so that foreigners will invest. There are a lot of rules and restrictive rules around investing in India and again, I think there’s a sense that if they want, for example, a modern retail industry they need foreigners in, to some extent.

Mark Draper: Yes.

Andrew Clifford: And so, not all of these things are going to happen overnight but bit by bit I think we will, overtime, see a different India as far as encouraging foreign investment in the country.

Mark Draper: Can you give us a feel for the size of the place? I mean living in Australia with 24 million people, just by comparison.

Andrew Clifford: Well you know, I think the population is now1.2 to 1.4 billion and it is a place of, you get outside of a city like Mumbai and Delhi, if you have visited them over the last 20 years, they have developed quite a bit, but once you get outside of that we are really talking about places, in terms of my travel remind me of going back to China 20 or more years ago in terms of simply the lack of development or very little way of modern retail or shopping malls. There’s some but nothing like what you would see in China today once you get into those second and third tier cities.

Mark Draper: Yeah.

Andrew Clifford: We talk about it, you know there’s the number of  Indians with a mobile phone but the reality is, in terms if things like 3G, they are already talking about rolling out 4G but again once we, in our recent trip outside of Mumbai and Delhi and we visited three other cities, you barely pick up or there was no 3G signal effectively, so there was an enormous opportunity for growth across a vast part of the country simply by the government letting investment occur.

Mark Draper: And investment in telecommunications would be one area, what would be some of the other areas, do you think where the government is really going to encourage investment?

Andrew Clifford: So you know what is interesting in one of the discussions that is always around subsides and prices of goods and services, but there is cry of like Indians; they want power, they want water, it’s not the price of it that worries them because one area where we visited, they were very enthusiastic saying they were quite privileged because they got electricity 12 hours a day. And this is the reality outside of most of the, outside of Delhi and Mumbai and maybe the central parts of the cities is that no electricity really is sort of a few, maybe five to ten hours a day type of proposition then you have got to go to your generator if you want it. So, it is very clear that the country needs power, it needs roads, it needs infrastructure to support industries, like rails, ports and the like and so these are all areas where there has been a real logjam in terms of getting approvals through and we’re starting to see a couple of things. One, we are starting to see approvals occur, we are seeing big issues around coal and the accessibility of coal that are now being dealt with in the country and in terms of roads where they have done a lot of private partnerships that haven’t really worked because of the way they were set up and so the government is looking at doing a much simpler sort of structure where they actually, the government is the one responsible for the acquiring the land, getting the rights and way, and then a much more simplified process for a private entity to get these types of assets built.

Mark Draper: And to round off, to what extent have investment managers like platinum and others embraced this or is it just at the early stages, do you think?

Andrew Clifford: I think if you look at the market over the last year, it has been extraordinarily strong stock market, leading into the election or post the election so there is a fair degree of understanding of what is going on here and I think that perhaps foreigners don’t have a strong a grasp of it as they might but the locals certainly have a huge or a very high level of optimism. So generally, that would be to us a bit of a signal that this isn’t the greatest opportunity, certainly if you look at emerging markets funds they have high weightings in India relative to their bench mark but if you look at the global funds they have, they just haven’t even arrived.

Mark Draper: Right.

Andrew Clifford: I think the way we will look at it is that, look it has been a great market but if we are looking in terms of ten year type time frames, we think it is probably what we’ve seen is the first leg of what will be a multi year bull market. It may well mean that we have to, you know prices need to consolidate and maybe the next year ahead may not be that exciting, you know valuations in India have never been quite as low as they have been in places like China and there certainly aren’t many gifts being handed out in that market at the moment but nevertheless in terms of a long term economic development and growth story, we don’t think there is anything like it anywhere in the world at the moment.

Mark Draper: And finally, can you give us a flavour of how you’re actually playing the India theme at the moment?

Andrew Clifford: So we were fortunate to sort of up our investments in India quite significantly at the end of 2012, before the run started and a lot of those holdings are in infrastructure, companies, ports, roads, power which is an area that really was suffering and now it has a bit more promise because of the changes that we have been talking about. Also in the financial sector so private banks we hold and these really are the sort of the core of the portfolio also Bharti telecomm which is the dominant or the largest mobile provider there is another one of our holdings, but there are a lot of interesting players coming into the portfolio around, some of the changes are occurring so what I haven’t mentioned so far is the changes to the energy subsides and so there are some of the companies in India because they are government entities. How they actually had to bear the weight of that subside wasn’t just something the government paid so these companies, their profitability was pressed because of the subside schemes, not only is that changing, it is also again these are companies that have a lot of investing to do, so a lot of potential upside from there so that’s one of the newer angles in the portfolio.

Mark Draper: Okay.

Andrew Clifford: And I just want to say, what’s hard to do in India is to find what we all love to find is the consumer companies because that is clearly a big area of growth…

Mark Draper: They’re pretty expensive.

Andrew Clifford: They are very expensive stocks and there aren’t that many options but we think there will be more and from this trip we have identified a couple of smaller companies within a quite interesting but not yet prepared to talk about what they are.

Mark Draper: Fair enough. Sounds like we are at the start of the Indian journey not the…

Andrew Clifford: I think so, I think you know people say India is like China ten years ago, it’s probably more like China 15 to 20 years ago, I think.

Mark Draper: Okay. Well thanks for putting it in perspective and thanks for the insights into India and I look forward to talking to you more later down the track and I hope you recover from the jet-lag, Andrew thanks.

Andrew Clifford: Okay, thank you.



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