Spectrum Insights - The problem with “bubbles”

Damien Wood

“The OECD concludes that Australia has the most over-valued housing market, with prices 52% above their ‘correct” level.“ Similar warnings continue as do the related dangers of investing in those financing the market – banks. The problem is the quote above is from December 2005. The point being, just because... Show More

Spectrum Insights - The worst of both worlds

Damien Wood

Australia’s RBA has its foot on the accelerator while the global bond markets are tapping on the brakes. Just when Australia’s economy could do with some stimulus it faces some headwinds from abroad. Rising bond yields internationally are spilling over into our bond markets. This hurts fixed rate bond prices.... Show More

Banks profits – Goldilocks

Damien Wood

Some politicians are bleating Australian bank profits are too high. Some financial commentators are fretting saying they are heading too low. At Spectrum we see bank profits from a credit viewpoint as about just right. Often lost in the commentary is perspective. When benchmarking Australian bank profitability against government bond... Show More

Brexit – keep calm and carry on in A$ corporate bonds

Damien Wood

Brexit means uncertainty. Uncertainty on its impact on the UK economy and uncertainty on whether it sets a precedent for others in the EU. And investment markets do not respond well to spikes in uncertainty. But what does it mean for Australian corporate credit risk? Next to nothing. Earnings and... Show More

All in equities - is it worth the risk?

Damien Wood

Many investors have financial goals. These presume certain returns over defined time frames. To achieve this, most Australian investors rely heavily on the local stock market. This may prove lucrative if you get your stock selection and timing right. As we have seen in recent years, however, equity returns can... Show More

An ugly currency-contest

Damien Wood

We note that currencies are in a relatively ugly contest in the current global environment and at present, the Aussie is looking fairly attractive. Spectrum sees a positive skew to the AUD for the next six months of say 74c to 79c compared to the current 75c. China’s slow-down in... Show More

Rising defaults – should bond investors worry?

Damien Wood

The Australian credit cycle may be taking a turn for the worse. Local banks have recently reported rising bad debt problems. But before corporate bond investors rush to dump their bond funds, we advise to pause and put things in perspective. Bad debts are currently near zero percentages in Australia.... Show More

Hard earned but decent returns – 2016 A$ corporate bond outlook

Damien Wood

The year 2016 looks like being a battle between greed and fear with regards to Australian dollar corporate bonds’ performance. Greed will be driven by investors increasingly frustrated by falling deposit yields. Fear looks most likely to come from abroad, namely, prevailing low commodity prices causing rising defaults in the... Show More

Patrick. Good question. I believe the graph is correct from the data I have. The issue is a consistency of presentation of data from the various national authorities. Some will "look through" the what the mutual funds are investing in and disclose this in various asset classes. Others will simply put "mutual funds". The non-disclosed or unclear will go into "other".

On No corporate bonds? Time to reconsider -

Thanks Patrick. On the question on bank deposits, I believe that the higher the level of retail deposits the better it is for banks from a creditworthiness perspective. Historically and across the globe retail bank deposits tend to be the most "sticky" source of funding during times of financial stress. The key reason for this is there is either explicit or implicit support from governments to support retail depositors. In Australia currently there is a guarantee for deposits up to $250k. Conversely foreign wholesale investors tend to be the least stable source of funding. So the less reliant a bank or banking system is on them the better it tends to be from a credit standpoint. While I agree that concentration of funding sources, at face, is an issue I believe that retail Australian deposits are likely to be the most stable source of funding in the event of a banking crisis.

On No corporate bonds? Time to reconsider -