Yovich & Co. Market Update - 23 May 2016

May 23, 2016 | Commentary

Changes in Market



Market Themes

  • Australasian markets continued their march higher as improving commodity prices helped the Australian market reach its highest level for the year. Indicators such as the ANZ Truckometer index and the Roy Morgan Consumer Confidence index proved that activity in the NZ economy is still strong.
  • Health related stocks remained in focus over the past month with Orion Health (OHE.nz), Ryman Healthcare (RYM.nz) and Comvita (CVT.nz) in the top 5 performing stocks over the past 4 weeks. They are up 12%, 9% and 9% respectively.
  • The other major indices I watch have had a sluggish month as investors are cautious regarding Chinese growth.
  • With the Reserve Bank of Australian reducing interest rates to 1.75%, the New Zealand Dollar rallied against the Aussie but fell against the US Dollar as risk appetite fell.

Investment News

Portfolio Construction Forum – Symposium 2016

Last week I attended the Portfolio Construction Forum – Symposium 2016 in Auckland and once again it was a great insight into the current mood amongst Financial Advisors and the topics that are on our minds in the current investment, economic and political landscape. The two big takeaways for me was a presentation from Professor Niall Ferguson from Harvard University on “If the global economy is in secular stagnation or an inflection point for growth”, and a practical presentation from Tim Farrelly from Farrelly's Investment Strategy (Sydney) on “How to develop a robust retirement spending policy”.


Secular Stagnation or an Inflection Point - Professor Niall Ferguson

This was my most anticipated part of the two day conference as I have read many articles and watched a few documentaries that Professor Niall Ferguson has produced over the past ten years. His argument in his presentation was that every Financial Crisis in the past has gotten over its “Hangover” within between five to ten years and, that there is real time data indicating that we have passed this “inflection” point and that the global economy is already showing signs of a pick up in growth. The caveats to his optimism can be summarised by the following geo-political risks:

  • A hard landing for the Chinese economy and a reluctance from the Government to implement economic reform to reduce the risk of asset bubbles.
  • Brexit (Britain Exiting the EU): Although Professor Ferguson felt that Britain would remain in the EU, an exit could derail the relative stability in Europe and as such have an impact on global growth.
  • Trump winning the Presidency and the risks of reduced diplomacy with other large economies such as China.
  • Russia: Vladimir Putin gaining further international influence and a risk that his muscular approach to international politics become de-stabilising.
  • ISIS: Further political instability in the Middle East and it spreading throughout the West.

How to Develop a Robust Retirement Spending Policy - Tim Farrelly

This topic is core to every investor’s retirement strategy because this spending policy determines not only how much you can spend in retirement, but also how much you need to invest to have the lifestyle you want once you retire. We have typically taken a very prudent approach to this and suggest that you only spend income and dip into capital only when absolutely necessary. As long as you don’t dip into too much capital, you will most certainly never run out, but you will have left a large inheritance. The use of a Monte Carlo simulator can provide a probability of running out, depending on your spending policy and how the investments perform. The simulator can provide confidence that if you are prepared to have a flexible spending policy, and depending on market conditions, then you can sustain a two to six percent draw down on capital and never run out. I have already used this tool for a few clients and the feedback has been that they have found it useful to see the probability outcomes as, we run through possible spending scenarios and investment performances.

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About the author

Jarrod Goodall

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