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Wednesday, 18 September 2013 16:08

Platinum Asset Management - Investment Approach

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We have long been supporters of Platinum Asset Management's ability to manage International investments.

Here is a brief 3 minute video that outlines more about their process and thinking takes place in their management of money.


DISCLAIMER: The above information is commentary only (i.e. our general thoughts).  It is not intended to be, nor should it be construed as, investment advice.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.

Thursday, 29 August 2013 13:59

Investment Theme - e-Commerce and the Chinese consumer

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The rise of mobile computing has truly been astonishing in the last 5 years since the introduction by Apple of the first iPhone in 2007.

Like the rail road industry in the US in the 1800's, that resulted in the rise of many complimentary industries, so too we see the rise of industries that are connected to the massive increase in mobile computing and e-commerce.  Facebook, Twitter, eBay are now household names that did not exist all that long ago.

While acknowledging that the late 1990's saw a share market tech boom that ended badly, we are now seeing a boom of e-commerce that is of a different quality.

Investors can choose to ignore this and focus on traditional companies, however e-commerce is likely to impact all forms of business and it's impact must be considered when making investment decisions.

By means of an example, the below chart shows the growth in smart phones in China since 2009.  Chinese e-commerce has grown over 70%pa since 2009.

Chinese Smartphone shipments

This growth theme is difficult to play from Australia given our small population by world standards.

We can report however that both Platinum Asset Management and Magellan Financial Group are both well and truly on top of developments in e-Commerce generally and more specifically in China.

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.


Friday, 04 October 2013 16:47

China - is it the next US sub-prime?

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Mark Draper (GEM Capital) talks with Andrew Clifford (Chief Investment Officer - Platinum Asset Management) about the stress that the Chinese credit system is under.

Andrew provides his view on whether China is the next US sub-prime crisis waiting to happen and outlines the sectors he would avoid given what is going on in China at the present time.

Andrew manages the Platinum Asia Fund and is in an excellent position to comment on the current situation in China.

Wednesday, 28 August 2013 19:51

Threat to Aust Banks from Payment Systems New Entrants

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Mark Draper (GEM Capital) talks with Andrew Clifford (Chief Investment Officer - Platinum Asset Management) about the threat to Australian Banks from the new entrants to the payments system such as Paypal.

Andrew acknowledges the risks are real and outlines the signs that investors should be looking for.

Friday, 23 August 2013 12:17

Behavioural Finance for Everyday Investors: Herding

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Franklin Templeton investors have produced a series of videos on Behavioural patterns of investors.


Here is one of the series on "Following the herd"

Monday, 05 August 2013 10:18

2013 Company Reporting Season - what lies ahead

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The company reporting season is just about to get underway.

Perpetual Funds Management talk about their expectation for the 2013 company reporting season in this 2 minute video segment.

Friday, 02 August 2013 11:47

$AUD - it's still very strong

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MD_7The $AUD has come down dramatically against the $US in recent months, particularly when the US Federal Reserve started discussing the cessation of their money printing program.

While the reduction in the $AUD has been significant (from $1-05 to below $0-90 at the time of writing), when taken in the context of the last 30 years, the $AUD is still very strong as can be seen in the chart below.

HHL chart 1

Or looking at this another way, the $AUD has traded below $0-80 for 74% of the time since it was floated in 1983.

HHL Chart 2

 One of the drivers of the upward pressure on the $AUD was the fact that some global investors mandates specified that they can only invest in AAA-stable bonds.  Australia is one of the few countries that offer AAA-stable Government bonds which attracted significant flows of money into Australia.  Below is a list of the only countries in the world that can offer AAA-stable rated bonds:









This, plus an offshore diversification away from owning US bonds (due partly to their low interest rate, made artificially low by the US Federal Reserve) has led to a significant rise in demand of Australian Government Bonds (referred to as CGS in graph below).  But the demand has slowed significantly in recent times, which coincides with the drop in the $AUD.

HHL Chart 3

Another driver of the $AUD has been the carry trade (that allows foreign investors to borrow in a foreign currency and earn a higher rate of return investing in $AUD).  This also seems to be giving way.

As we have previously flagged, the path for the $AUD has changed and in speaking with many investment specialists we respect, the consensus view is that the decline of the $AUD has further to run.

This will benefit investors with exposure to International Shares and those Australian companies who derive income from foreign sources.

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

Friday, 19 July 2013 10:50

Do you need to lodge a tax return for 2012/2013?

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Draper_05This is the first year that the tax free threshold has risen to $18,200, and therefore many more Australians now no longer need to complete a full tax return.

Those with investments in Australian shares (owned either directly or through managed funds) should ensure that they claim their entitlement to imputation credits.  But you may not have to complete a full tax return to do that.

We have sourced this article from the ATO to assist you in determining whether you need to complete a full tax return or whether you can simply use the "Application for Refund of Franking Credits" form.

Important Point - Retirees should pay particular attention to "Reason 2"


If any of the following applies to you then you must lodge a tax return.

Reason 1

During 2012-13, you were an Australian resident and you:

  • paid tax under the pay as you go (PAYG) withholding or instalment system, or
  • had tax withheld from payments made to you.

Reason 2

You were eligible for the seniors and pensioners tax offset, and your rebate income (not including your spouse's) was more than:

  • $32,279 if you were single, widowed or separated at any time during the year
  • $31,279 if you had a spouse but one of you lived in a nursing home or you had to live apart due to illness (see the definition of Had to live apart due to illness in T2 Seniors and pensioners (includes self-funded retirees)), or
  • $28,974 if you lived with your spouse for the full year.

To work out your rebate income, see Rebate income or use the Rebate income calculator for seniors and pensioners tax offset.

Reason 3

You were not eligible for the seniors and pensioners tax offset but you received a payment listed at question 5 and other taxable payments which when added together made your taxable income more than $20,542.

Reason 4

You were not eligible for the seniors and pensioners tax offset and you did not receive a payment listed at question 5 or question 6, but your taxable income was more than:

  • $18,200 if you were an Australian resident for tax purposes for the full year
  • $416, if you were under 18 years old at 30 June 2013 and your income was not salary or wages
  • $1 if you were a foreign resident and you had income taxable in Australia which did not have non-resident withholding tax withheld from it, or
  • your part-year tax-free threshold amount if you became or stopped being an Australian resident for tax purposes; read question A2 or phone 13 28 61.

Other reasons

You must lodge a tax return if any of the following applied to you:

    • You had a reportable fringe benefits amount on your:
      • PAYG payment summary - individual non-business, or
      • PAYG payment summary - foreign employment.
    • You had reportable employer superannuation contributions on your:
      • PAYG payment summary - individual non-business
      • PAYG payment summary - foreign employment, or
      • PAYG payment summary - business and personal services income.
    • You did not claim your full private health insurance rebate entitlement as a premium reduction, or a direct payment from Medicare, and your income for surcharge purposes is below $84,000 for singles and $168,000 for families*

* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.

  • You carried on a business.
  • You made a loss or you can claim a loss you made in a previous year.
  • You were 60 years old or older and you received an Australian superannuation lump sum that included an untaxed element.
  • You were under 60 years old and you received an Australian superannuation lump sum that included a taxed element or an untaxed element.
  • You were entitled to a distribution from a trust or you had an interest in a partnership and the trust or partnership carried on a business of primary production.
  • You were an Australian resident for tax purposes and you had exempt foreign employment income and $1 or more of other income. (Read question 20 Foreign source income and foreign assets or property for more information about exempt foreign employment income. For the 2009-10 income year and subsequent years, there are changes limiting the exemption for foreign employment income.)
  • You are a special professional covered by the income averaging provisions. These provisions apply to authors of literary, dramatic, musical or artistic works, inventors, performing artists, production associates and active sportspeople.
  • You received income from dividends or distributions exceeding $18,200 (or $416 if you were under 18 years old on 30 June 2013) and you had:
    • franking credits attached, or
    • amounts withheld because you did not quote your tax file number or Australian business number to the investment body.
  • You made personal contributions to a complying superannuation fund or retirement savings account and will be eligible to receive a super co-contribution for these contributions.
  • You have exceeded your concessional contributions cap and may be eligible for the Refund of excess concessional contributions offer: see Super contributions - too much super can mean extra tax.
  • Concessional contributions were made to a complying superannuation fund or retirement savings account and will be eligible to receive a low income superannuation contribution, providing you have met the other eligibility criteria.
  • You were a liable parent or a recipient parent under a child support assessment unless you received Australian Government allowances, pensions or payments (whether taxable or exempt) for the whole of the period 1 July 2012 to 30 June 2013, and the total of all the following payments was less than $22,379:
  • You were either a liable parent or a recipient parent under a child support assessment. If this applies to you, you cannot use the short tax return.

Deceased estate

If you are looking after the estate of someone who died during 2012-13, consider all the above reasons on their behalf. If a tax return is not required, complete the and send it to us. If a tax return is required, see Completing individual information on your tax return for more information.

Franking credits

If you don't need to lodge a tax return for 2012-13, you can claim a refund of franking credits by using the publication Refund of franking credit instructions and application for individuals 2013 (NAT 4105) and lodging your claim by mail, or phone 13 28 65.

Thursday, 18 July 2013 12:37

The US Federal Reserve, Rates and Bonds

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As the US economy continues to recover, it was inevitable that investor focus would shift from the need for more stimulus, which has been the dominant issue over the last few years, to when the US Federal Reserve will actually start to reverse the stimulus. This is important because easy monetary conditions on the back of poor growth and low inflation – first low rates and then QE – have helped underpin a fall in bond yields to record lows. This in turn has underpinned strong returns from sovereign bonds and gains in bond-like high yield investments, notably corporate debt, real estate investment trusts (REITs) and high yield shares, such as banks and telecommunications companies in Australia.

Nervousness about a change in direction from the Fed has been building this year, particularly over the last month following Fed Chairman Bernanke’s comments that he is prepared to slow or “taper” the pace of quantitative easing “in the next few meetings”. This would likely mean cutting the US$85 billion a month it is buying in government bonds and mortgage-backed securities to around US$60 billion a month.

Fearing this signals a shift towards the start of US monetary tightening, expectations for interest rate hikes in the US have been brought forward a year or so, bond yields have increased sharply and beneficiaries of easy money in the US, such as non-government debt, REITs, emerging market debt and equities, high yield shares and the A$ have all been under pressure. This has happened at a time when not all US economic data has been strong, leading some to fear a premature tightening by the Fed.

So the Fed’s latest monetary policy setting meeting was much anticipated for greater clarification around these issues.

The message from the Fed

The basic message from the Fed may be summarised as follows.

First, Chairman Ben Bernanke confirmed that the Board may start to slow the pace of QE later this year. He added that the reduction is likely to be gradual and that QE could end by mid next year. However, he also noted that this is conditional on the economy continuing to improve as the Fed expects, with growth projected to accelerate to 3-3.5% next year. While the immediate reaction in share markets has been negative, taking the lead from confirmation that QE is on track to be phased down, the fact it will only be phased down if the economy continues to improve is likely to be supportive for shares going forward, as this means stronger profits. When it does start to taper, the Fed is likely to prefer a meeting after which it has a press conference where it can explain its actions. This would suggest action will be taken at the September meeting at the earliest.

Second, the pace of QE can still be increased or decreased in the future, depending on how the US economy is performing. In other words, just because the Fed might start to taper in say, September, doesn’t mean that all the next moves will automatically be towards a further reduction. In fact, Bernanke appears to have made a steady decline in QE towards ending the program in mid-2014 contingent on expectations being met that the unemployment rate will fall to around 7% by then. For growth-oriented investments, this is effectively what some have called the “Bernanke put”, i.e. either the economy and profits improve (supporting share markets) or QE continues. It’s very different to the first two rounds of QE that automatically ended in March 2010 and June 2011, only to be followed by significant share market weakness.

Third and most importantly, the Fed reiterated that any decision to slow QE does not mean that interest rate hikes are any closer. In fact, 15 of the 19 Fed meeting participants don’t expect the first Fed Funds rate hike until 2015 or later. This is one more than in March. Moreover, the Fed continues to indicate that near zero interest rates will be justified at least as long as unemployment remains above 6.5% and inflation expectations remain low, with Bernanke pointing out that the 6.5% unemployment rate is a threshold, not a trigger. This suggests that the move forward over the last six weeks in money market expectations for the first Fed rate hike from mid-2015 to mid-2014 is premature. Expect rate hike expectations to settle down again and push back into 2015.

Our assessment

Our assessment is that while the Fed will likely start to slow quantitative easing later this year, this will actually be a good thing because it will only occur because the Fed’s mission has been accomplished. In other words, the US economy can start to be taken off life support. Moreover, by the time this occurs it will be a surprise to no one.

However, as the Fed keeps telling us, it is unlikely to want to rush into raising interest rates, given that:

  • Growth is still a long way from booming and is still relatively fragile as the private sector continues to reduce debt ratios. This is evident in bank loans growing at just 3%p.a and fiscal stimulus now being reversed. This is also evident by the mixed tone of recent economic indicators, with a solid housing recovery but soft readings for the ISM and most other manufacturing conditions indices.
  • Spare capacity remains immense as evident by a 7.6% official unemployment rate and double-digit labour market underutilisation and a still very wide output gap (i.e. the difference between actual and potential growth), as shown in the next chart.

Source: Bloomberg, AMP Capital

  • As the labour market continues to strengthen, labour force participation will likely start to bounce back, slowing the fall in the unemployment rate and achievement of the Fed’s 6.5% threshold.
  • Inflation is low and falling, currently just 1.4%.

So short of a sharp acceleration in the US economy, it’s very hard to see the Fed raising interest rates for the next year at least. This is important because the 1994 ‘bond crash’, which saw US 10-year bond yields rise nearly 300 basis points, was triggered and underpinned by an aggressive rise in the US Fed Funds rate (its official short term interest rate). See the next chart.

Source: Bloomberg, AMP Capital

Implications for investors

Despite an initially negative reaction, the message from the Fed remains reasonably market friendly. The pace of quantitative easing will only slow when the economy is stronger and rate hikes are unlikely any time soon.

The bottom line is that at this stage, a 1994-style bond crash still seems unlikely.1 US interest rates are unlikely to rise any time soon and in Japan, Australia and probably Europe, monetary conditions are still in the process of being eased.

However, we remain cautious of sovereign bonds, given that yields remain well below long term sustainable levels, for which potential nominal GDP growth provides a good guide. See the next table.

Bond yields are well below sustainable levels

Source: Bloomberg, AMP Capital

After four years of record inflows, US bond funds are at risk of seeing big outflows as investors start to see lower or poor returns. In fact, they have started to see outflows in the last few weeks and this could have a long way to go if sentiment towards bonds really turns negative. And of course, this in turn will create upward pressure for bond yields.

Finally, periodic bouts of nervousness regarding the Fed will likely continue as the US economy continues to improve. As a result, we remain of the view that sovereign bond yields will continue to gradually trend higher, resulting in poor returns for bond investors.

Against this backdrop, the chase for yield will likely continue as interest rates will remain low, albeit with perhaps less enthusiasm than seen over the last year. However, returns from assets that have already benefitted immensely from low bond yields like credit and real estate investment trusts will likely slow.

Shares have also benefitted from lower bond yields, although it is worth noting that in relation to US shares, gains have been underpinned by record profits. Moreover, they still trade on relatively high forward earnings yields compared to bond yields. See the next chart.

Source: Bloomberg, AMP Capital

This suggests that earnings yields on shares still offer a reasonable buffer as bond yields normalise, albeit a too rapid or great an increase in bond yields will result in more short term volatility as we have seen over the last month.

One final point to note is that a move towards the end of quantitative easing in the US will further reverse the upward pressure seen on the A$ since 2009. This will be good news for the Australian economy as the stubbornly strong A$ has been a key factor holding the economy back recently. Expect the A$ to fall to around US$0.80.

1. See “What’s the chance of a bond crash?” Oliver’s Insights, Feb 2013.


Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

The NAB Business Conditions survey released in July confirmed what most already knew, that business conditions remain tough in Australia.  While the economy has not entered recession officially, "it just feels like it" for most of the country.

The chart below is the latest survey reading.


The Business Conditions survey shows that we have not seen this sort of weakness since 2009 which was during the depths of the GFC.  Business confidence is best described as "shot" and will probably not improve until the result of the Federal election is known.

For this reason we remain very selective about where we would recommend to invest in Australia.  We are tending to favour businesses that have overseas earnings rather than those solely based domestically.

This weakness in business conditions could also convince the RBA to further cut interest rates.  NAB themselves have suggested that the RBA could move again in August following the issue of this survey.  This could further weaken the $AUD.

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.