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China’s economic growth slows to 27-year low, worrying signs for Australia

Markets Small Caps

Donald Trump says he is really happy that Chinese growth is the slowest it has been for 27 years but Australia should be worried – very worried.
'Donald Trump says he is really happy that Chinese growth is the slowest it has been for 27 years but Australia should be worried – very worried.With annualised quarterly GDP growth slowing from 6.4% in the first three months of the year to just 6.2% in the June quarter, the signs are ominous that the Trump trade war and continuing slow economic activity in much of the rest of the world are really hitting the brakes in China.While China’s growth is still impressive compared to much of the rest of the industrialised world, the slowing trend is of concern when you compare it to the 6.6% last year and the 6.8% in 2017.It is true that the Chinese economy is much larger now than it was a couple of years ago so that even slower growth still provides plenty of momentum in terms of Australia’s bulk commodity exports such as iron ore and coal.Terrible timing for a slowing Australia However, with Australia still stuck in a slowing growth trend of its own, the timing is terrible.Australia is very closely linked to China’s fortunes given that it is our largest trading partner and we will certainly feel the pain if Chinese growth were to slide closer towards 6% over the rest of the year.What makes this slowdown more worrying for Australia is that China is now saddled with significant debt from previous measure to stimulate its economy so there is little chance of a repeat of that happening.High debt levels reduce chances of Chinese stimulus Indeed, China has been working hard to correct the excessive levels of debt caused by the post-GFC stimulus efforts, which have left it with an estimated debt-to-GDP ratio that is closing in on 300% if you include state owned enterprises.Their stimulus actions for the trade war so far have been much smaller and more targeted, such as the People’s Bank of China loosening reserve requirements for banks and the lowering of some taxes and fees.None of that has overcome the effects of the Trump trade tariffs, which has seen quite a lot of manufacturing that would have happened to China redirected to countries that will not be part of the Trump tariff moves.US businesses have been particularly quick to diversify away from China, in case they get caught in the crossfire from the trade war.Trade talks still crucial but going nowhere Then there is the central issue of what will continue to happen with the US/China trade talks, which are delicately poised at the moment.The Trump administration has already raised tariffs on $US250 billion of China’s exports to the US in May and came close to adding tariffs to another $US300 billion.That has been stalled for now after President Trump deferred the extra tariffs at the G20 leaders’ meeting.That has allowed negotiations to continue between China and the US but there is no sign yet of a breakthrough in the talks so a large expansion in the tariff program is still a likely result.Adding to the pressure is the chance that President Trump could still widen his trade wars to Europe and elsewhere.Tariffs already biting for China Already the tariffs are hurting China with both exports and imports falling, with the 7.3% fall in imports in the last month particularly severe.Australia can really only watch and hope as the world’s biggest economy – the US – does battle with the second biggest – China – with every chance that the third major economic group of the Eurozone could well be sucked into the trade war as well.As an open, trading country we are particularly suited to the previous relatively open world trading regime but the rise of protectionist measures leaves us exposed.We are price takers rather than price makers and any further slowing in world economic activity will be felt keenly in Australia, particularly given our current growth is already sluggish and slowing. . The post China’s economic growth slows to 27-year low, worrying signs for Australia appeared first on Small Caps .'

How to get a 6pc yield without losing your shirt

Markets Australia News Today

'Self-managed superannuation funds (SMSFs) and other self-directed investors often rely on a grab-bag of yield stocks rather than take a diversified fund approach.They do not realise they can get 6 per cent yield or more in an income-managed fund at lower risk.This is no time for complacency.After strong gains this year, Australian shares are 20 per cent overvalued (on a market-weighted basis for the S &P/ASX 200 index), according to Morningstar.Beware bond proxies Warnes is especially wary of utilities, infrastructure and listed property companies – the so-called “bond proxies” – that outperform when interest rates fall.The S &P/ASX 200 A-REIT index’s total return is 22 per cent over one year to July 2019 and several infrastructure and utility stocks and funds have rallied. “Across the market, yield stocks have become expensive,” Warnes says. “I can’t see how companies in a sluggish economy can maintain high dividend payout ratios.We will look back on 2019 as the high watermark in dividend ratios, which will make it even harder for income investors.” As equity valuations rise and risks intensify, the prudent strategy is holding more cash in portfolios, Warnes says. “I expect global equities to fall by 20 per cent in the next big downturn, so it is pointless chasing a 5 per cent yield.Preserving capital should be the priority.” Warnes’ bearish view is no comfort to investors who live off portfolio yield.Adding more cash and fixed interest to portfolios as a defensive tactic makes sense, but it is a drag on income, with many bank term deposits and Australian government bonds yielding under 2 per cent.Even that is looking relatively attractive as more countries head towards negative interest rates.Germany is selling 10-year government debt with a negative yield for the first time in three years and France, Austria, Denmark, the Netherlands, Sweden and Switzerland have joined the club of countries, headlined by Japan, with 10-year bonds at negative interest yields.More than $US13 trillion ($18.6 trillion) is invested in negative-yield bonds worldwide, according to Bloomberg, as investors effectively pay these governments to hold their money.Negative yields signal distress for the global economy, yet equity markets continue to rally.Clime Asset Management executive director, John Abernethy, says the “Japanification” of investment markets will spread to more European countries and ultimately Australia.He expects some form of quantitative easing (QE) in this market as rates head towards zero from the current cash rate of 1 per cent.If Abernethy is right, more countries will have sluggish economic growth, negative interest rates, barely any inflation and engage in QE, a form of unconventional monetary policy that increases money supply to encourage lending and investment, and risks creating asset bubbles.Lasting low yield “Investors should be prepared for a sustained, low-yield cycle for at least the next few years,” Abernethy says. “It is hard to see what will drive inflation and interest rates higher and get yield heading up.We are stuck in a world of low, rolling growth and mild downturns.” Abernethy expects income funds that invest in bank term deposits, corporate debt and fixed interest to deliver a total average annualised return of just 4 per cent over five years.A blended portfolio (half in an income fund, half in a growth fund that holds equities), will return 6 per cent annually in that period.High asset prices are the main culprit for lower future yields. “A number of listed property trusts now trade at a significant premium to their net tangible assets (NTA),” Abernethy says. “Bond prices have been bid up and yields have fallen significantly.Infrastructure assets have rallied and their forward returns will compress.High total returns from these assets in the past year, mostly because of capital growth, are an aberration.” Retail investors will have to lower income expectations.They expect the All Ordinaries index to yield 4.3 per cent over the next 12 months, according to the latest Investment Trends Investor Intentions Index.Yield expectations have risen slightly since March 2019 and are the same as a year ago, despite slowing economic growth and two local rate cuts.Investors expect a 6.1 per cent total return from Australian shares over 12 months, according to Investment Trends.Most of that return will come from yield; capital growth will be scarce. “The trend for yield expectations is heading lower, but not by much,” says Investment Trends research director, Recep Peker. “Retail investors have high demand for yield, but are struggling to find ways to achieve it.” It is not all bad news.Dr Don Hamson, managing director of Plato Investment Management, believes a diversified portfolio of quality Australian shares can yield 6 per cent this year after franking.The Plato Australian Shares Income Fund is targeting a 9 per cent gross return, including franking.Dividends “Attractive dividends from resource companies, particularly iron ore miners, will boost overall yield in Australian equities and there is talk of special dividends in the resources sector,” Hamson says. “Balance sheets are collectively in good shape and the risk of dividend cuts is low.Blue-chip shares are a no-brainer for income investors seeking high, fully franked yield.” Plato’s dividend-cut model forecasts the probability of a dividend cut for each dividend-paying stock in the S &P/ASX 300.When this model is aggregated across stocks, it shows the dividend outlook for the Australian sharemarket.The model is tracking close to the lowest probability in the past 16 years for dividend cuts, and puts the odds at less than 5 per cent.Peter Bolton, a former investment adviser and editor of yeildreport.com.au , which tracks yield across asset classes, says the best short-term income strategy is to live off capital. “With yields falling and prices elevated, the smart approach is to draw down on capital for income rather than take riskier bets on yield”, he says. “There is nothing wrong in living off capital after a period when asset prices have risen.That is better than being pushed further and further along the risk curve for yield, a strategy that probably will end in tears.” Bolton says income investors should focus on risk first and return second. “Too many investors do the opposite: they fixate on the yield needed to maintain their lifestyle and choose assets that pay that yield, regardless of risk.A better approach is determining the level of risk you will take, finding assets that match that risk profile and accepting the return.” Nine yield strategies: Cash ETFs The news is grim for investors in bank term deposits (TDs). Two-year deposits from the four major banks range from 1.6 to 1.9 per cent and are expected to head lower.With Australia’s headline inflation rate at 1.3 per cent in the March quarter, many TD investors face negative real returns.Cash exchange-traded funds (ETFs) are an alternative for investors who want to increase their portfolio cash exposure without locking money away in TDs.Cash ETFs are bought and sold like a share on ASX but typically return a little less than one-year TDs.The BetaShares Australian High Cash ETF and the iShares Core Cash ETF are the main fund options for investors seeking greater liquidity in their cash exposure.Australian government bond funds (unlisted) Several Australian government bond funds have performed well over 12 months, most of the return coming from higher bond prices as yields have fallen.The Mercer Australian Sovereign Wealth Bond has starred with a total return of 11.5 per cent over 12 months.The Jamieson Coote Active Bond fund had a 10.4 per cent in that period and the Vanguard Australian Government Bond Index Fund returned 9.98 per cent.These are outstanding returns given the risk profile of government bonds but are unlikely to be repeated in the next 12 months without a slew of further domestic rate cuts.Australian government bond funds (listed) Fixed-interest ETFs have boomed this year as more money flows into them and issuers launch products to meet market demand for yield.The Russell Australian Government Bond ETF returned 12.01 per cent over 12 months to June 2019, ASX data shows.The iShares Treasury ETF returned 10.59 per cent and the SPDR S &P/ASX Australian Government Bond Fund 10.52 per cent.Like unlisted Australian government bond funds, fixed-interest ETFs are unlikely to provide the same return in the next 12 months but are a useful tool for investors seeking low-cost government bond exposure through an ASX-quoted ETF.Corporate fixed-interest funds Conservative income investors can use corporate fixed-interest funds that hold investment-grade bonds.Investors with a higher risk profile could consider funds that invest in sub-investment-grade bonds in Australia and overseas.This form of corporate debt has a greater risk of default but typically has higher returns.In investment-grade bonds, the Vanguard Australian Corporate Fixed Interest Fund has a gross return of 8.08 per cent over one year to June 2019.It invests in bonds issued by Australia’s major banks, offshore banks, property trusts and other lending institutions.Neuberger Berman’s NB Global Corporate Income Trust is part of a new breed of listed funds in Australia that offer exposure to global high-yield corporate bonds – a $US2.7 trillion market.Listed on the ASX in 2018, the trust holds a portfolio of sub-investment-grade bonds from up to 350 companies, including Netflix, Dell, Hertz and Virgin Media.The goal: a 5.25 per cent annual return (after fees) paid monthly, with low volatility.With many of Australia’s largest investment-grade corporate bonds yielding less than 2 per cent after bond price increases, the NB Trust’s targeted return and fund diversification appeals, provided investors can tolerate higher risk.Diversified income funds These yield-focused funds are arguably the best option for income seekers.Some invest mostly in Australian and global fixed interest, others in high-yield credit, property or shares.The RARE Infrastructure Income Fund returned 19 per cent over one year, boosted by stronger demand for global infrastructure stocks, amid falling interest rates.Core infrastructure suits conservative investors but could underperform when interest rates rise.The Plato Australian Shares Income Fund delivered 15.1 per cent in income (including franking credits) over one year to May 2019 and has returned 9.6 per cent in yield annually since inception in September 2011.The Vanguard Australian Shares High Yield Fund Retail is another diversified income with attractive yield over five years.Conservative investors could choose multi-sector income funds that invest across asset classes and offer greater diversification.But they yield less because of their fixed-interest allocation.Hybrid funds Listed on ASX, hybrid securities have elements of debt and equity.Like bonds, they promise to pay a fixed or floating rate until maturity.Unlike bonds, the amount and timing of interest payments are not guaranteed and hybrids can be converted into shares.Hybrids are complex and do not suit inexperienced or risk-averse investors.Prospective investors attracted to hybrid yields from major banks and other issuers should invest through a hybrid managed fund that specialises in this market.A specialist hybrid manager, Elstree Investment Management, has delivered a 9.66 per cent gross return over 12 months to June 2019 through the Elstree Enhanced Income Fund.It holds up to 40 hybrids and its default risk is consistent with lower-investment-grade securities.Hybrid returns are falling as the gap between the median trading margin on hybrids and the three-month bank bill swap rate compresses.The margin, about 2.5 per cent, is near its 2014 low, implying returns of under 4 per cent from many hybrids.Listed investment companies (LICs) Larger LICs are popular with conservative income investors who want yield from a diversified portfolio of Australian equities through low-cost active funds.The market’s largest LICs, Australian Foundation Investment Company (AFIC), Argo Investments and Milton Corporate, are yielding about 4 per cent, before franking.WAM Capital yielded 7.6 per cent at the end of June, ASX data shows.As closed-end funds, LICs can trade at a premium or discount to underlying net tangible assets (NTA). Persistently larger discounts to NTA are a problem for investors, but can also be an opportunity in higher-quality LICs that revert to their average premium or discount.AFIC traded at a 6.8 per cent discount to NTA at the end of June, ASX data shows.Argo traded at a 3.8 per cent discount and Milton a 4 per cent discount.In theory, investors can buy AFIC, Argo and Milton at a discount to their underlying asset value and potentially capitalise on weaker LIC sentiment this year.Buying quality LICs when they trade at a discount to NTA can reduce valuation risk for yield seekers.Smart-beta equity yield ETFs A growing number of yield-focused ETFs have emerged in the past few years.They provide low-cost exposure to yield strategies, but extra care is needed with smart-beta ETFs that use rules-based strategies to enhance yield rather than replicate a market-weighted index.The iShares S &P/ASX Dividend Opportunities ETF had a trailing yield of 7.14 per cent at the end of June 2019, ASX data show.It provides exposure to a basket of 50 high-yielding stocks.The UBS IQ Morningstar Australian Dividend Yield ETF aims to replicate the price and yield performance of Morningstar’s model income portfolio, consisting of 25 stocks.Its trailing yield is about 4.9 per cent and one-year total return (including capital growth) is 11.6 per cent.One of the first yield-focused ETFs, the Russell High Dividend Australian Shares ETF, had a trailing yield of 8.5 per cent in June 2019 and total return of 11.7 per cent.The Vanguard Australian Shares High Yield ETF has been another solid performer.As with any ETF, it pays to understand the composition and methodology of the fund’s underlying index.Some yield ETFs invest in small and mid-cap stocks to enhance capital growth, increasing risks.Others are based on analyst stock recommendations and model portfolios.Similar returns from yield ETFs are unlikely in the next 12 months after the market’s rally this year and as the average market yield edges lower.But yield ETFs have their place for investors seeking diversified yield exposure through low-cost, ASX-quoted funds.Peer-to-peer (P2P) funds P2P funds match companies seeking debt capital from non-bank lenders and retail investors who want to invest in an individual loan or pool of loans, potentially earning a higher return compared to fixed interest, albeit with higher risk.The market’s largest P2P lender, La Trobe Financial, has a range of commercial and residential property investments around Australia.Several current La Trobe P2P investments in NSW promote net returns about 6.5 per cent over 12 to 15 months.Platinum Mortgage Securities is another channel to invest in mortgage securities.Investors in property-based P2P funds must be comfortable with potential default risks if borrowers cannot repay their loan and property prices falls.Investors who believe property values are stabilising and the risk of loan defaults is easing because of rate cuts, might find extra appeal in P2P platforms in mortgage securities.They suit experienced, risk-tolerant investors who understand the risks of property lending.Source link Finance News Australia . The post How to get a 6pc yield without losing your shirt appeared first on Australia News Today .'

Victoria Beckham shares a surprise announcement on Instagram

Markets Now To Love

Victoria Beckham is an icon in the fashion industry, but her latest announcement about all things beauty has got her fans talking, and not in the way you'd expect!
'At 45 years of age, Victoria Beckham is looking pretty darn good. That's why when we first caught wind that she was launching a brand new beauty range, we were utterly ecstatic. And now, the former Spice Girl has made an announcement that's only exacerbated the feeling, because she's finally dropped the details on when we can expect to see the new line on shelves, and shortly after on our vanities. Taking to her Instagram account this week, the fashion designer and mum-of-four shared a stunning snap of herself sitting in a makeup chair while a full-blown photo shoot takes place in the background. The 90s pop star looks stunning in a simple makeup look and a plain cami singlet - clearly, the products from her new makeup line are doing all the talking! But it was what she said alongside the candid picture that's really excited her fans. \'Another day on set shooting for #VictoriaBeckhamBeauty, launching this fall!! Link in bio to be the first to know. #notperfect #setlife\'. Yep, that means VB is planning to launch the line very soon, as in, anytime from September! While many fans shared in their excitement for the launch, some were more perplexed by Victoria's use of the word 'fall'. Indeed the term is used in the US to describe what we, and many in the UK know as Autumn. Given Posh Spice's very British roots , she quickly divided fans in the comments. \'I think you mean autumn,\' wrote one. Another said: \'Yes, Autumn would be better!\' But wording aside, there was no denying Victoria's striking appearance in the picture, which many decided to comment on instead. \'You look absolutely beautiful!\' Wrote one admirer. As for the use of emoji's, lets just say the love-heart eyes featured prominently in the comments section. WATCH: Victoria Beckham Dances Through NYC. Story continues after video.. Watch video Information about Victoria's new beauty line is being kept under wraps at present, although it is understood the brand will be sold via Victoria's official website. Beckham has also said of the new range: \'I want to take care of women inside and out, providing them with the must-have items in make-up, skincare, fragrance and wellness that I feel I need in my own life.\' The line will be based in New York, and headed by co-founder and CEO Sarah Creal, who previously headed up marketing at Estée Lauder. With credentials like Sarah and an influence like Victoria's, we think it safe to say this line is going to be very popular. Earlier this month, the brunette beauty shared yet another explosive Instagram post that divided fans in the comments section. Uploading a cute snap of her 8-year-old daughter Harper Seven, the pop singer turned fashion designer wrote: \'Today I had a little guest on set! Shooting #VictoriaBeckhamBeauty with mummy 💕kisses Harper Seven x #VBbeauty #HarperSeven.\' Once again, fans pointed out something striking about the new post - only this time, it was about Harper herself. \'Harper is so pretty! She looks just like Brooklyn ❤️,\' wrote a fan. Many agreed with this, sharing their own similar thoughts. But others also pointed out the youngest Beckham's similarity to another prominent family member. \'She looks like her father 🤙,\' one fan commented. We must say, young Harper does look the spit of both Brooklyn and her soccer legend father David!'

Nickel price surges as stockpiles deplete and Indonesia threatens export ban

Markets Small Caps

Nickel’s time to shine may have reappeared with the metal reaching US$14,220 per tonne (US$6.31/pound) this week, as stockpiles continue to diminish, and the electric vehicle and lithium-ion battery revolution picks up pace.
'Nickel’s time to shine may have reappeared with the metal reaching US$14,220 per tonne (US$6.31/pound) this week, as stockpiles continue to diminish, and the electric vehicle and lithium-ion battery revolution picks up pace.A nickel price resurgence has been forecast for the last few years, with many analysts and nickel miners believing it had finally arrived in 2018, before US President Donald Trump picked a trade war with China, which escalated considerably as the year advanced.With the US-China trade war causing uncertainty in several commodity markets including nickel, the metal’s price started falling in mid-2018, finally bottoming at US$10,435/t at the start of this year.Since then, it has slowly begun creeping back, but in late June the rise picked up pace, with the metal reaching US$14,220/t on Wednesday.Underpinning the rising price are diminishing stockpiles on the London Metal Exchange with stocks sitting at 148,374t on Thursday – down from more than 350,000t less than two years ago.Jervois Mining (ASX: JRV) executive general manager Michael Rodriguez told Small Caps the stockpile figure represents less than two months’-worth of supply.He pointed out that LME stockpiles falling below 150,000t this week had also sent a signal to the market, which is in a supply deficit and facing potential shortages. “The large drop in inventory over such a short period of time is material and speculative buyers have been buying backing higher future prices.Bottom line, nickel has gone bullish after doing very little over the last 12 months,” Mr Rodriguez said.He added it was time to watch nickel stocks carefully. “Having said that low interest rates, changing consumer sentiment and the ongoing trade war between China and the US looks like it’s going to drag well into next year,” he noted.Near-term price outlook Looking ahead in the near-term, analysts are varied in their outlook for the nickel price.At the start of the year, the ongoing trade war saw Goldman Sachs Group curbing its near-term forecasts for base metals, predicting nickel would be hovering at US$11,500/t by mid-2019 and close out the year at US$12,500/t.The price of nickel has risen 34% this year.The current nickel run has already outpaced the analyst’s mid-2019 expectations and it remains to be seen whether the price will continue rising or falter again.Meanwhile, commodity analysts such as Deutsche Bank and JP Morgan have pointed out the current deficits will continue and, as a result, the nickel price will have no choice but to head upwards.Market dynamics The nickel market slipped into a supply deficit in 2016 and this is predicted to continue through to at least 2025 due to strengthening demand in stainless steel and lithium-ion battery markets, with both markets likely to be competing for supply in the coming years.WA-based nickel miner Western Areas (ASX: WSA) noted at a recent conference it had seen a “significant increase” in offtake enquiries for its nickel sulphide concentrate.However, the miner also said the nickel price this year had remained too low to incentivise new project development.The miner added with current nickel operations depleting, the market is still heading towards its much talked about inevitable supply crunch . Nickel consumption in stainless steel is growing about 5% per year, while use in batteries is surging between 30-40% a year.It’s estimated that an addition 1Mt of nickel will be needed to meet projected demand over the next decade.Adding to the tight market was major nickel exporting nation Indonesia’s threat to reinstate an export ban on its ore from 2022, with the export ban only lifted in 2017.The ban was initially introduced in January 2014 with the aim of forcing miners to build domestic processing capacity.Also noting the tight supply situation, BHP chief executive officer Andrew Mackenzie told delegates at the Bank of America Merrill Lynch Global Metals, Mining and Steel Conference that the company’s Nickel West operations offered “high-return” potential due to the expected growth in battery markets and scarce nickel sulphide supplies.Meanwhile, Swiss-based Glencore’s head of global nickel assets Marc Boissonneault said at the same conference that about 140 million electric vehicles are expected to be on global roads by 2030.To feed this, more than 1.3Mtpa of nickel is needed just for EVs during this period.Putting this demand into perspective, EV’s soaked up only 3% of the commodity in 2018.EV nickel consumption is predicted to rise to 5% of all nickel production by 2020, increasing to 18% by 2025 and 59% by 2030.Even if Indonesia decides not to ban nickel exports, Glencore anticipates the deficit will continue through to at least 2030.Nickel stock tracker . The post Nickel price surges as stockpiles deplete and Indonesia threatens export ban appeared first on Small Caps .'