NEWS
16 Feb 2021 - Are risk markets entering a correction zone?
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ARE RISK MARKETS ENTERING A CORRECTION ZONE? Chris Manuell, CMT, Jamieson Coote Bonds 5 February 2021 The market adage of January being the barometer for equity market performance for the year will always get tossed around as investors outline their roadmap for the year ahead particularly coming off the historic events of 2020. The RBA may also be paying particularly close attention to the performance of the US equity market given the strong marriage of the pair since the nadir in risk markets last March. The RBA governor could become a fan of seasonals, with strong statistical evidence that the S&P 500 Index performance for the start of the year drives returns for the remainder of the year. With this in mind, the S&P 500 Index fell -1.11% (for the first month of 2021) in price terms and Deutsche Bank has studied data going back to 1872 that shows negative first months of the year have a strong impact on the performance for the remainder of the year, with 58% resulting in down years. The RBA will be very disappointed that after embarking on an aggressive QE campaign it has failed to generate the transmission mechanism into the exchange rate that it would of anticipated - an 8% rally since November 2020 would have figured deeply in the surprise move to extend QE by another 100 billion of bonds or 5 billion a week for a further six months. The currency has managed to continue on its ascent with the global liquidity pump switched on full power mode driving a strong performance in commodities markets - with iron ore 22% of our exports - and domestic data surprising to the upside as the fiscal cheque book keeps printing alongside a successful Covid-19 suppression strategy. The weakness of the USD has also played its part in providing a tailwind for the AUD which will stymie any attempts for the RBA to achieve its overly optimistic target of getting inflation consistently in the 2-3% target band. The RBA is not alone in lamenting the weakness in the USD with the ECB continuing to talk down its currency as USD strength will continue to undermine global economies' attempts to escape a post-Covid world. We monitor price action, sentiment and investor positioning as part of our rigorous investment framework and within that there are some subtle signs that indicate that risk markets may be entering a zone where they could pause or correct from their recent moves. The record short positioning in the USD is a dangerous development with the market all on one side of the boat leaving it very unstable and vulnerable to any unexpected shocks which can generate aggressive unwinding. The below chart highlights the historically stretched positioning of USD bears which will make it difficult for another secular leg lower in the USD currency as sellers become exhausted.
Source: Bloomberg The robust correlation between the AUD and risk markets is well documented and is interesting to note that the price action of late has showed some signs of that marriage starting to sour which provides investors with a salient reminder of the old risk-on/risk-off nature of financial markets and of the possibility that the text-book philosophy of interest-rate differentials may become in vogue again in 2021. The intention of the RBA to weaken the currency with its outsized bond buying program might finally gain some traction if the US/Australian yield differential reasserts its downward trend. Careful what you wish for, as a weaker Australian currency could also suggest trouble lies ahead for risk markets in general. Performance of Australian Dollar (RHS) and US Equities (LHS)
Source: Bloomberg. Past performance is not indicative of future performance.
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15 Feb 2021 - China is not going to save the world this time
CHINA IS NOT GOING TO SAVE THE WORLD THIS TIMEMarcel von Pfyffer, Arminius Capital 4 February 2021 In November 2008 a panicked Chinese government launched a stimulus package equivalent to 12% of then GDP. The package propelled China out of the GFC, but it created more problems than it solved, e.g.:
The current Chinese government is not about to repeat this mistake. Its response to the GFC has been modest, focusing on maintaining public sector investment and propping up the banking sector. Households have been left to fend for themselves, with no support payments like Jobkeeper or Jobsaver. Many small businesses have closed permanently, and many low-skilled workers and new graduates have been unable to find jobs. Households' need to draw down their savings means that, even for those who still have incomes, spending remains subdued and consumer sentiment remains cautious. The IMF forecasts GDP growth of 1.9% in 2020 and 7.9% in 2021. Although this level of growth is better than most of the world, the Chinese economy is still operating well below potential, with more downside risk than upside:
For Australia, a slowdown in the Chinese economy would be very negative. More than a third of our exports go to China, and another quarter go to China's Asian neighbours, whose economies are also linked to China. South Korea is the country that China imports most from, at US$203 billion, with Japan second at $180 billion and Taiwan third at $177 billion (although China may not agree that these are cross border flows). Just off the podium stands the US in fourth place at $156 billion, with Australia coming in sixth place at $105 billion - remembering that America started a trade war based on these figures (a mere $51 billion difference between US and Australian numbers). When viewing the trade balances (below) between China and the rest of the world we understand far better the precarious position Australia is in. Although, commodities are in finite supply around the world with only a few other countries physically able to step into the breach should China make the political decision that they would no long wish to purchase Australian commodities.
In light of current political tensions between China and Australia, and Australia's over-reliance upon China as its primary export market, policy makers and diplomats both need to ensure that their current strategies are robust enough to ensure that Australia does not also sneeze should China catch a cold.
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12 Feb 2021 - Hedge Clippings | 12 February 2021
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12 Feb 2021 - Performance Report: Paragon Australian Long Short Fund
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| Fund Overview | Paragon's unique investment style, comprising thematic led idea generation followed with an in depth research effort, results in a concentrated portfolio of high conviction stocks. Conviction in bottom up analysis drives the investment case and ultimate position sizing: * Both quantitative analysis - probability weighted high/low/base case valuations - and qualitative analysis - company meetings, assessing management, the business model, balance sheet strength and likely direction of returns - collectively form Paragon's overall view for each investment case. * Paragon will then allocate weighting to each investment opportunity based on a risk/reward profile, capped to defined investment parameters by market cap, which are continually monitored as part of Paragon's overall risk management framework. The objective of the Paragon Fund is to produce absolute returns in excess of 10% p.a. over a 3-5 year time horizon with a low correlation to the Australian equities market. |
| Manager Comments | The Fund returned -2.5% in January. Paragon noted markets corrected in the last week of the month on excessive optimism, leaving global and local indices mixed. Positive contributors included Pilbara, PointsBet and DeGrey (short), offset by declines in gold and technology holdings impacted by the market sell-off. Paragon's view is that monetary and fiscal stimulus tailwinds remain, with Biden proposing new spending plans at approx. US$2t. They believe the strength in markets is analogous to the recovery and expansion from March 2009 lows. They reiterated their view that this equities bull market is early-stage (and not late). |
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12 Feb 2021 - 4D's 2021 Outlook
12 Feb 2021 - RATES OUTLOOK 2021 - Getting ahead of the year ahead
11 Feb 2021 - Performance Report: Surrey Australian Equities Fund
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| Fund Overview | The Investment Manager follows a defined investment process which is underpinned by detailed bottom up fundamental analysis, overlayed with sectoral and macroeconomic research. This is combined with an extensive company visitation program where we endeavour to meet with company management and with other stakeholders such as suppliers, customers and industry bodies to improve our information set. Surrey Asset Management defines its investment process as Qualitative, Quantitative and Value Latencies (QQV). In essence, the Investment Manager thoroughly researches an investment's qualitative and quantitative characteristics in an attempt to find value latencies not yet reflected in the share price and then clearly defines a roadmap to realisation of those latencies. Developing this roadmap is a key step in the investment process. By articulating a clear pathway as to how and when an investment can realise what the Investment Manager sees as latent value, defines the investment proposition and lessens the impact of cognitive dissonance. This is undertaken with a philosophical underpinning of fact-based investing, transparency, authenticity and accountability. |
| Manager Comments | The Fund returned -1.49% in January. Top performers included Pointsbet Holdings, Sezzle, Uniti Wireless and Lifestyle Communities. Heading into reporting season, Surrey are comfortable with their portfolio and look forward to the large number of company meetings they have planned. Surrey made various changes to the portfolio over January and ended the month with 5% in cash and 30 individual holdings. Top holdings included Auckland International Airports, Mineral Resources, Omni Bridgeway, Pointsbet and Unitit Group. By sector, the portfolio was most heavily weighted towards the Industrials and IT sectors. |
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11 Feb 2021 - Performance Report: AIM Global High Conviction Fund
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| Fund Overview | AIM look for the following characteristics in the businesses they want to own: - Strong competitive advantages that enable consistently high returns on capital throughout an economic cycle, combined with the ability to reinvest surplus capital at high marginal returns. - A proven ability to generate and grow cash flows, rather than accounting based earnings. - A strong balance sheet and sensible capital structure to reduce the risk of failure when the economic cycle ends or an unexpected crisis occurs. - Honest and shareholder-aligned management teams that understand the principles behind value creation and have a proven track record of capital allocation. They look to buy businesses that meet these criteria at attractive valuations, and then intend to hold them for long periods of time. AIM intend to own between 15 and 25 businesses at any given point. They do not seek to generate returns by constantly having to trade in and out of businesses. Instead, they believe the Fund's long-term return will approximate the underlying economics of the businesses they own. They are bottom-up, fundamental investors. They are cognizant of macro-economic conditions and geo-political risks, however, they do not construct the Fund to take advantage of such events. AIM intend for the portfolio to be between 90% and 100% invested in equities. AIM do not engage in shorting, nor do they use leverage to enhance returns. The Fund's investable universe is global, and AIM look for businesses that have a market capitalisation of at least $7.5bn to guarantee sufficient liquidity to investors. |
| Manager Comments | The Fund returned -2.7% in January. AIM noted near-term uncertainty regarding the pace of global vaccine rollouts was the main headwind to the Fund's monthly performance. Businesses owned in the Fund that will benefit from a normalisation of their operations as vaccines are increasingly widely distributed over the course of 2021 continued to face operating constraints due to COVID-related lockdowns. The top five contributors to performance were Prosus, Microsoft, Alphabet, ICON and PayPal. The five largest detractors were Coca-Cola Co., Mastercard, Estee Lauder, Accenture and Heineken. AIM emphasised that their focus will remain on owning high quality businesses with resilient cash streams, strong balance sheets, competitive advantages underpinning high returns on capital and run by capable management that understand capital allocation. They added that they will avoid the speculative end of the market. |
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11 Feb 2021 - Webinar Invitation | Premium China Funds Management
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February 2021 Webinars We would like to invite you to participate in our February webinars. We will be providing an outlook for the Asian financial markets in 2021.
Asian Equities Update Webinar Details:
Emerging Markets Fixed Income Update Webinar Details:
Presented by:
ABOUT PREMIUM CHINA FUNDS MANAGEMENT Premium China Funds Management is a boutique funds management group established in 2005 to bring Asia investment opportunities into the Australian market, in order to bridge the gap between investors' needs to internationally diversify and the suite of investment solutions available. |
10 Feb 2021 - Performance Report: DS Capital Growth Fund
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| Fund Overview | The investment team looks for industrial businesses that are simple to understand; they generally avoid large caps, pure mining, biotech and start-ups. They also look for: - Access to management; - Businesses with a competitive edge; - Profitable companies with good margins, organic growth prospects, strong market position and a track record of healthy dividend growth; - Sectors with structural advantage and barriers to entry; - 15% p.a. pre-tax compound return on each holding; and - A history of stable and predictable cash flows that DS Capital can understand and value. |
| Manager Comments | The Fund's capacity to protect investors' capital in falling and volatile markets is highlighted by the following statistics (since inception): Sortino ratio of 1.80 vs the Index's 0.67, average negative monthly return of -1.94% vs the Index's -3.14%, and down-capture ratio of 45%. The Fund's down-capture ratio indicates that, on average, it has fallen less than half as much as the market during the market's negative months. The Fund has also outperformed the Index in all 10 of the Index's 10 worst months since the Fund's inception. |
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