From Jonathan Bayes, Chief Investment Officer, Partners Wealth Group.
In a week where Australian business confidence reached its best level in 20 years, share-markets did very little.
Labor Tax Grab
Probably the biggest news of the week was Bill Shortens pledge to eliminate cash rebates on excess imputation credits if elected.
Like so many things, it isn’t black and white, and you shouldn’t assume it is. What however we are advocating for, was for client portfolios to mitigate against any excess risk that the policy is brought into effect, and that means evaluating one’s exposure to bank capital note securities, and in particular those securities with longer dated maturities (in other words 2022 and beyond).
We think the threat of uncertainty is enough to cap the hybrid security sector between now and the Federal Election mid next year, and given the sector is trading at rather tight levels now, we saw little downside in trimming exposures where appropriate.
As a guide for what we did in the models we run, purely to mitigate our exposures. Nothing more.
Global Political Risk inching up
In the US we saw more members of the Trump Administration depart, with Rex Tillerson fired as Secretary of State over social media and National Economic Advisor Gary Cohn resign, supposedly over the administrations recent tariff moves.
Neither of these departures is good news really for markets, nor is the headline implying Bob Mueller has subpoenaed the Trump Organization for documents relating to its dealings in Russia.
It feels like the political risk is beginning to escalate, both on the domestic sphere for Trump, but also internationally in light of accusations the Russian government orchestrated the poisoning of a former Russian spy on British soil (again). I know these sound like little things for markets now, but these matters are slowly building in significance it seems to me.
Economic Data fine
On the economic front at home, beyond the terrific business confidence figures, home lending continued to tighten not only to owner-occupiers, but also to investment borrowers.
The tightening on lending criteria to investment borrowers from APRA over the past year or more has had a terrific impact at curbing demand, and investment borrowing has now dropped back from nearly half of all mortgages 3 years ago to an 18-month low at 36%.
In the US, it was too soon to see any rise in inflation figures so that release came and passed with little fuss. Elsewhere, small business optimism reached a new record in February and employment gains were also super strong.
Wesfarmers decide to de-merge Coles
Pulling out local stock moves, there were really only a couple of news items to mention. First, Wesfarmers (WES) announced the surprise decision to de-merge its Coles supermarkets business. Interestingly the stock is up 5% today, giving those of you yet to sell down your holdings yet another opportunity to do so.
The de-merger move is an interesting one, and but for the likely leverage it will seemingly take on, I find it hard to see the positive story for equity investors. If anything, the de-merge is an admission from WES management that Coles is now ex-growth.
I do think it is a positive for Woolworths (WOW) in the very near-term as I think the decision focusses Coles management on the de-merger, and not the competition, for at least a further year. However in the medium term, cut from the apron strings of the parent, I do think Coles will be forced to compete more aggressively with WOW for market share (and the related scale benefits), and that on a 2-3 year view this move is actually more negative than positive for the overall profitability of Australian supermarkets.
Enjoy the weekend.
Friday 10am values
|S&P / ASX 200||5921||-22||-0.4%|
|Property Trust Index||1312||+2||+0.2%|
Thursday Closing Values
|U.S. S&P 500||2747||+8||+0.3%|
Key Dates: Australian Companies
|Mon 19th March||
Div Pay-Date – AMPHA, NABPB, Platinum (PTM), SUNPE, SUNPF, SUNPG
|Tue 20th March||
Div Ex-Date – Crown Resorts (CWN)
Div Pay-Date – ANZPG, ANZPH, NABPA, NABPE
|Wed 21st March||
Div Ex-Date – WBCPG
|Thu 22nd March||
Div Ex-Date – Carsales (CAR), Flight Centre (FLT), WBCPC
Div Pay Date – Blackmores (BKL), WBCPF, Woodside (WPL)
|Fri 23rd March||Div Pay-Date – Healthscope (HSO), NABPC, WBCPE|
For more information on the above please contact your Partners Wealth Group advisor directly or on 1800 333 143.