Monthly Archives: February 2014

The Shanghai Composite is at an interesting stage.

With the growth of the Australian economy so strongly correlated with the Chinese economy, any changes in China need to be watched carefully.  There are a number of concerns with the Chinese economy.

China avoided the depths of the GFC with huge infrastructure programs financed using credit.  As a result, from 2008 China’s public and private debt has expanded to reach more than 200% of GDP. With continued development the debt is increasing and its rapid growth is outpacing both China’s economic growth and its increase in tax revenue.

China now needs to increase domestic consumption and increase its taxation base but investment has continued to grow rapidly while domestic consumption as a percentage of GDP continues to fall.  In the light of these issues, the flow of cash into real estate speculation as well as social inequality emerge as big problems, so clearly China needs to… Continue reading

How do I invest in an uncertain environment?

The investment environment has probably never been so uncertain, particularly for the retiree who is dependent on income and capital preservation.   In a world of very low interest rates, many uncertainties and continued obsessive money printing by central banks, investing is a real challenge.

I need an adequate return with security of capital.  So what is an adequate return?  I aim at a minimum return of 5% above the rate of inflation.  The current rate of inflation is said to be running at 2.7% but the inflation rate differs from person to person. As a self-funded retiree, facing a falling AUD my major costs are overseas travel (while not ignoring health and food) and my rate of inflation is at least 4%.  So I need to aim for a 9% return with a fair margin of safely.

Fixed interest securities offer lower risk but… Continue reading

Should investors buy or sell in this volatile market?

With market volatility investor sentiment ranges from optimism to pessimism in a single week.  So what should the investor be doing? Who should he listen to?  There are certainly experts who are wildly optimistic about the market and probably as many who are very pessimistic.

The answer is that the investor needs to make up his own mind and not listen to the market noise.  The chatter on media such as CNBC provides confusion and gives no guidance to the investor.  So it is essential to have a solid understanding of the fundamentals that drive the market and also an understanding of market sentiment.

Market sentiment is a measure of what all the players are doing in the market. The investor can get a sound understanding of market sentiment by using technical analysis.  Technical analysis provides an historical perspective on the price and volume movement… Continue reading

Should the banks be sold?

The share price of Australian banks has had a spectacular move over the past few years.  This has been a reflection of the lower risk and better value of Australian banks compared to most of their international counterparts and to the fact that investors have been seeking high yielding stocks in a low interest environment so that the majority of super funds in Australia hold the banks in their portfolios.

With increased volatility in the markets and an apparent correction now under way, it is worth assessing the banks and asking whether they are more vulnerable than other blue chip stocks and should be sold.

After 23 years of continuous economic growth the Australian economy is in fair shape.  Compared to most countries it has very low total debt at 276% of GDP which includes a very low government debt of about 22% giving the government room to… Continue reading

Analysis of the ASX20 suggests that a significant correction has started.

While many major world stock markets have had very strong trends over the past 3 to 5 years the Australian market along with the Chinese market has lagged behind and with recent volatility in world markets, there are strong suggestions that a correction is underway.    

The ASX20 comprises the top 20 stocks by capitalisation on the Australian market and these account for nearly 50% of the total market capitalisation.  Consideration of the charts of the ASX20 stocks should provide an insight into the probable future movement of the overall Australian market.   .

When considering the monthly charts of the stocks in the ASX20 it is evident that most of these stocks have been in an uptrend for the past one to two years.  The exceptions have been three resource stocks which have moved sideways, QBE, AMP and WDC which have been in… Continue reading

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