AdviserVoiceJapanese disaster Archives - AdviserVoice https://www.adviservoice.com.au/tag/japanese-disaster/ Financial planner information & financial planner education/CPD - AdviserVoice Thu, 23 Jul 2026 20:30:20 +0000 en-US hourly 1 https://wordpress.org/?v=7.0.2 Investment Briefing March 2011: Japan https://www.adviservoice.com.au/2011/03/investment-briefing-march-2011-japan/ https://www.adviservoice.com.au/2011/03/investment-briefing-march-2011-japan/#respond Thu, 17 Mar 2011 07:58:17 +0000 https://adviservoice.com.au/?p=6658 When catastrophe strikes somewhere in the world and many lives are lost, and the human suffering is unbearable for all involved, questions about the economic cost of the disaster and the impacts on financial markets inevitably arise, and they require an answer.

There is always the danger that commenting on the economic and market impacts of an event such as the Sendai earthquake and the subsequent tsunami can be seen as trivialising the event; somehow downplaying the enormous human suffering. Nevertheless, there are consequences for the economy and for markets that require a considered response, without diminishing our horror and deep sorrow at the human cost of the catastrophe.

As this piece is being written, the official death toll in Japan stands at 3,373, and is expected to climb well above that figure. A series of explosions at the Fukushima Nuclear Power Plant has raised grave fears of a nuclear disaster. In the financial markets, share prices in Tokyo have now fallen by nearly 20% since the close of trade prior to the earthquake. Share prices across the region are also sharply lower today – particularly as  developments at the nuclear plant have worsened. The yen has strengthened against the US Dollar, perhaps reflecting speculation about, rather than actual, repatriation of Japan’s offshore assets.

It is too early for anything more than educated guesses to be made about the short-term negative impact on Japan’s economic performance, not least because the extent of the radioactive leakage from the Fukushima plant is highly uncertain. According to estimates from Barclays Capital, the affected area accounts for over 6% of Japan’s GDP, 6.8% of the population, and 7.2% of Japan’s private sector capital stock. At this point, analyst estimates of the initial adverse impact on GDP are utterly unreliable, as are estimates of the likely boost to measured economic growth that will result from the repair and reconstruction work. That said, it is still worth noting that all such catastrophes produce both an initial adverse impact on recorded economic growth, and then add to measured growth as the recovery work gets underway.The timing and the magnitudes involved are of course uncertain and highly variable.

What follows is our assessment of what the catastrophe might mean for the Japanese, world and Australian economies, and how MLC portfolios have been affected.

For Japan, the broad impact of the disaster on growth is likely to follow the pattern outlined above, however, there are broader issues at work also. Japan’s fiscal position is already dire, and the Government’s share of the reconstruction and recovery effort is likely to put enormous pressure on the nation’s finances. It is highly likely that taxes will need to increase, at least temporarily, to fund at least part of the cost and that is likely to have an adverse impact on private demand, which has been anaemic to begin with.

While Japan is the world’s third largest economy, the global recovery has not depended on Japan for its momentum – the contrary is true. Japan’s recovery has been highly export dependant. As Capital Economics puts it, Japan has been a passenger in the global recovery and not the main driver. The world is still a highly uncertain place, and there were ample issues to worry about prior to the quake and tsunami (peripheral Europe, the Middle East etc.). In saying this, the world economy is perhaps better able to withstand the kind of shocks currently being experienced than it was two years ago.

For Australia, Japan is still a major trading partner – the Australian Bureau of Statistics merchandise trade data show that in 2010 Japan took 19% of Australia’s goods exports by value, with resources accounting for the lion’s share. The short-term disruption to Japan’s industrial activity is likely to curb demand for Australia’s exports in the short term, however, the recovery effort is likely to be resource intensive, and provide something of a boost to our exports to Japan over time. At this point, we see no reason to change any medium-term view about the likely performance of the Australian economy or financial markets.

At MLC, our portfolios are extremely well-diversified across asset classes, investment managers, countries, industries, and individual securities. In the event of a catastrophe such as this, diversification is perhaps the only protection available to investors, but nevertheless, portfolios have been adversely affected, although some exposures within portfolios will actually have fared quite well.

In global equities, Japan accounted for 8.6% of the MSCI All-Country World Index at the end of February 2011. All except one of MLC’s global managers have Japanese exposure (Sands Capital being the exception). The overall portfolio, however, is underweight in Japan.

Moreover, MLC’s Japanese equity holdings have fared substantially better than the overall Japanese market, reflecting the high quality, and somewhat defensive nature of our holdings. While many of the Japanese companies we invest in will experience disruption to their businesses, it is also important to recognise that many Japanese companies are highly globalised, with production facilities and operations across many countries. The major car companies are an obvious example.

Our global listed real estate portfolios also have Japanese exposure, and some of the Australian REITs we invest in also have assets in Japan. Reports so far suggest that our exposure to the main affected areas is minor.

Australian shares have also fallen in value in recent days, and individual stocks we hold in MLC’s Australian shares strategy will have been affected – both adversely and positively – by the events in Japan. Among the insurance stocks we hold, QBE has already announced its exposure to Japan and its share price has suffered somewhat. However, its exposure is modest when viewed in the context of its overall reserves; the impact on MLC’s portfolio has been minor. On the other hand, other holdings in the portfolio, such as Bluescope steel has seen its share prices fare relatively well in the aftermath of the quake. In addition, MLC’s portfolio is significantly underweight resources stocks that have fallen further than the overall market in recent days, and has little or no exposure to the smaller uranium stocks, where prices have plummeted.

Within MLC’s debt portfolios, our exposure to Japanese debt securities has been minimal, reflecting the very low yields on offer in the Japanese Government Bond (JGB) market. Our exposure to Japanese corporate securities is virtually non-existent as spreads over JGBs have been way too tight to attract the interest of our managers.

Prior to this disaster a number of investment managers – both those we currently engage and those we do not – have expressed a view that Japanese equities were attractively valued, and even some traditionally cautious, value-oriented managers have noted that they were seeing opportunities in the Japanese market for the first time in many years. The market contains many quality companies with truly global franchises that will survive this disaster, and eventually continue to prosper. Moreover, there is a chance that this crisis will bring about the kind of decisive policy action that could help end Japan’s twenty-year long economic malaise. Please forgive the harsh end to this briefing note, but the role of our active managers, is to look through the human tragedy and seek out opportunities that inevitably arise in the wake of disasters, and that is just what they will be doing.

Important Information:
Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice in this communication, consider whether it is appropriate to your objectives, financial situation and needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited ABN 30 002 641 661 and MLC Limited ABN 90 000 000 402 and consider it before making any decision bout whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at www.mlc.com.au An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication.
]]> When catastrophe strikes somewhere in the world and many lives are lost, and the human suffering is unbearable for all involved, questions about the economic cost of the disaster and the impacts on financial markets inevitably arise, and they require an answer.

There is always the danger that commenting on the economic and market impacts of an event such as the Sendai earthquake and the subsequent tsunami can be seen as trivialising the event; somehow downplaying the enormous human suffering. Nevertheless, there are consequences for the economy and for markets that require a considered response, without diminishing our horror and deep sorrow at the human cost of the catastrophe.

As this piece is being written, the official death toll in Japan stands at 3,373, and is expected to climb well above that figure. A series of explosions at the Fukushima Nuclear Power Plant has raised grave fears of a nuclear disaster. In the financial markets, share prices in Tokyo have now fallen by nearly 20% since the close of trade prior to the earthquake. Share prices across the region are also sharply lower today – particularly as  developments at the nuclear plant have worsened. The yen has strengthened against the US Dollar, perhaps reflecting speculation about, rather than actual, repatriation of Japan’s offshore assets.

It is too early for anything more than educated guesses to be made about the short-term negative impact on Japan’s economic performance, not least because the extent of the radioactive leakage from the Fukushima plant is highly uncertain. According to estimates from Barclays Capital, the affected area accounts for over 6% of Japan’s GDP, 6.8% of the population, and 7.2% of Japan’s private sector capital stock. At this point, analyst estimates of the initial adverse impact on GDP are utterly unreliable, as are estimates of the likely boost to measured economic growth that will result from the repair and reconstruction work. That said, it is still worth noting that all such catastrophes produce both an initial adverse impact on recorded economic growth, and then add to measured growth as the recovery work gets underway.The timing and the magnitudes involved are of course uncertain and highly variable.

What follows is our assessment of what the catastrophe might mean for the Japanese, world and Australian economies, and how MLC portfolios have been affected.

For Japan, the broad impact of the disaster on growth is likely to follow the pattern outlined above, however, there are broader issues at work also. Japan’s fiscal position is already dire, and the Government’s share of the reconstruction and recovery effort is likely to put enormous pressure on the nation’s finances. It is highly likely that taxes will need to increase, at least temporarily, to fund at least part of the cost and that is likely to have an adverse impact on private demand, which has been anaemic to begin with.

While Japan is the world’s third largest economy, the global recovery has not depended on Japan for its momentum – the contrary is true. Japan’s recovery has been highly export dependant. As Capital Economics puts it, Japan has been a passenger in the global recovery and not the main driver. The world is still a highly uncertain place, and there were ample issues to worry about prior to the quake and tsunami (peripheral Europe, the Middle East etc.). In saying this, the world economy is perhaps better able to withstand the kind of shocks currently being experienced than it was two years ago.

For Australia, Japan is still a major trading partner – the Australian Bureau of Statistics merchandise trade data show that in 2010 Japan took 19% of Australia’s goods exports by value, with resources accounting for the lion’s share. The short-term disruption to Japan’s industrial activity is likely to curb demand for Australia’s exports in the short term, however, the recovery effort is likely to be resource intensive, and provide something of a boost to our exports to Japan over time. At this point, we see no reason to change any medium-term view about the likely performance of the Australian economy or financial markets.

At MLC, our portfolios are extremely well-diversified across asset classes, investment managers, countries, industries, and individual securities. In the event of a catastrophe such as this, diversification is perhaps the only protection available to investors, but nevertheless, portfolios have been adversely affected, although some exposures within portfolios will actually have fared quite well.

In global equities, Japan accounted for 8.6% of the MSCI All-Country World Index at the end of February 2011. All except one of MLC’s global managers have Japanese exposure (Sands Capital being the exception). The overall portfolio, however, is underweight in Japan.

Moreover, MLC’s Japanese equity holdings have fared substantially better than the overall Japanese market, reflecting the high quality, and somewhat defensive nature of our holdings. While many of the Japanese companies we invest in will experience disruption to their businesses, it is also important to recognise that many Japanese companies are highly globalised, with production facilities and operations across many countries. The major car companies are an obvious example.

Our global listed real estate portfolios also have Japanese exposure, and some of the Australian REITs we invest in also have assets in Japan. Reports so far suggest that our exposure to the main affected areas is minor.

Australian shares have also fallen in value in recent days, and individual stocks we hold in MLC’s Australian shares strategy will have been affected – both adversely and positively – by the events in Japan. Among the insurance stocks we hold, QBE has already announced its exposure to Japan and its share price has suffered somewhat. However, its exposure is modest when viewed in the context of its overall reserves; the impact on MLC’s portfolio has been minor. On the other hand, other holdings in the portfolio, such as Bluescope steel has seen its share prices fare relatively well in the aftermath of the quake. In addition, MLC’s portfolio is significantly underweight resources stocks that have fallen further than the overall market in recent days, and has little or no exposure to the smaller uranium stocks, where prices have plummeted.

Within MLC’s debt portfolios, our exposure to Japanese debt securities has been minimal, reflecting the very low yields on offer in the Japanese Government Bond (JGB) market. Our exposure to Japanese corporate securities is virtually non-existent as spreads over JGBs have been way too tight to attract the interest of our managers.

Prior to this disaster a number of investment managers – both those we currently engage and those we do not – have expressed a view that Japanese equities were attractively valued, and even some traditionally cautious, value-oriented managers have noted that they were seeing opportunities in the Japanese market for the first time in many years. The market contains many quality companies with truly global franchises that will survive this disaster, and eventually continue to prosper. Moreover, there is a chance that this crisis will bring about the kind of decisive policy action that could help end Japan’s twenty-year long economic malaise. Please forgive the harsh end to this briefing note, but the role of our active managers, is to look through the human tragedy and seek out opportunities that inevitably arise in the wake of disasters, and that is just what they will be doing.

Important Information:
Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice in this communication, consider whether it is appropriate to your objectives, financial situation and needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited ABN 30 002 641 661 and MLC Limited ABN 90 000 000 402 and consider it before making any decision bout whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at www.mlc.com.au An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication.

The post Investment Briefing March 2011: Japan appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2011/03/investment-briefing-march-2011-japan/feed/ 0 Investor Signposts: Week Beginning March 20 2011 https://www.adviservoice.com.au/2011/03/investor-signposts-week-beginning-march-20-2011/ https://www.adviservoice.com.au/2011/03/investor-signposts-week-beginning-march-20-2011/#respond Thu, 17 Mar 2011 07:03:58 +0000 https://adviservoice.com.au/?p=6616

The big picture

  • If you wanted to get a good textbook example of a ‘fear-driven’ event it is the so-called Japanese nuclear crisis. It started with one of the biggest earthquakes in the modern era. But clearly that earthquake wouldn’t have had a major impact on global financial markets if it weren’t accompanied by a destructive tsunami and then by the damage to nuclear facilities in north-eastern Japan.
  • The panic that followed news of radiation leakage at the nuclear plants was understandable. Most investors haven’t had any experience with such events, and the initial response was to dump shares and commodities and to factor in significant monetary stimulus.
  • It is hard to work out how Australia would be affected by nuclear crisis in Japan, but still investors dumped stocks, driving the local sharemarket down by over 2 per cent. The Aussie dollar fell more than US3 cents and the chances of an imminent rate cut soared to more than 60 per cent. Clearly there was a lot of uncertainty about the ramifications of a nuclear plant meltdown. But that was also fed by misinformation about nuclear power and the industry more broadly.
  • While questions are being raised about the future of nuclear power, it is worth highlighting that many countries across the globe already have high reliance on nuclear power without key problems and other countries are pushing ahead with plans for nuclear power plants. In France, nuclear plants provide 80 per cent of power and there have been no major incidents. In China there are 13 nuclear power plants with 25 currently under construction. In addition there are a further 52 plants planned and another 72 plants proposed.
  • But what about the Japanese situation? Well, as always it is best to defer to the experts – impartial experts, that is, those that neither promote, nor are fierce critics of, the nuclear industry. One such person is Dr Josef Oehman from MIT. He states that “there was and will not be any significant release of radioactivity.” Perhaps. It depends how you define “significant”.
  • But Dr Oehman has gone into significant detail in explaining how the Fukushima plants work, the type of fuel they use and containment devices that are in place. Eventually, considered explanations like this will filter out through the media and into the wider community. But the risk in the short-term is that misinformation will continue.
  • Hopefully the event will have a positive side in that there will be greater understanding of the nuclear power industry, how each of the plants work, as well as more focus on the safety mechanisms in place. For Japan, the other implication of the damage to the nuclear power plants is on going power needs. In the short to mediumterm, Japan will have to rationalise power and that will hamper economic recovery.
  • Last week we spoke about a thinning out of the economic calendar. Well the coming week calendar looks like a virtual wasteland in terms of fresh economic or financial events to provide direction for investors. Certainly that is the case in Australia, although there is still a good spattering of economic data in the US.
  • In Australia, the week kicks off with February data on imports to be released on Monday. This is one of the more timely economic indicators and highlights spending made by consumers and businesses. But there are also complications such as the influence of the Australian dollar, lumpy imports like airplanes and rising fuel imports caused by higher oil prices. But the data is certainly worth dissecting.
  • Also released on Monday is data on enterprise bargaining claims, but the figures are dated, covering the September quarter last year.
  • Then there is a gap until Thursday when the Reserve Bank releases its bi-annual Financial Stability Review and assistant governor Malcolm Edey delivers a speech. The financial sector will be given a clean bill of health while Edey has the opportunity to outline Reserve Bank views on the Japanese situation.
  • And on Friday the Bureau of Statistics releases its financial accounts for the December quarter. These figures are a treasure trove of information including data on overseas holdings of shares, financial wealth levels of households and cash holdings by businesses and superannuation funds.
  • In the US, the housing market is centre-stage over the coming week. On Monday, February data on existing home sales is released with home price figures on Tuesday and new home sales on Wednesday.
  • Existing home sales are expected to have softened from a 5.36 million annual rate in January to 5.20 million in February. Despite soft home prices, the market won’t fundamentally recover until there are less people on dole queues. But new home sales are expected to have edged higher from a 284,000 annual rate in January to 290,000 in February. Harsh winter weather has been affecting the monthly readings in this series.
  • Also on the agenda this week is the Chicago Fed index on Monday, Richmond Fed manufacturing survey on Tuesday, durable goods orders on Thursday and economic growth (GDP), consumer sentiment and corporate profits on Friday.
  • Economists expect that the final estimate of economic growth in the December quarter (they have three attempts at estimating growth) will be confirmed around 2.9/3.0 per cent. In Australia, economic growth stands at 2.7 per cent so you can understand the willingness of foreign investors to put their money to work in the US at present.

Sharemarket

  • In light of the fear-driven sell-off on global sharemarkets in response to the crisis in Japan, it is always useful to come back to fundamentals. We have assessed 12-month forward price-earnings ratios for a raft of markets across the globe provided by FactSet.
  • Of the 70 regions assessed, only 14 have PE ratios that are higher than their 5-year averages. For the “world” market, the current PE ratio of 13.61 is almost 10 per cent lower than the decade average and stands at a sevenmonth low. Interestingly the most under-valued region is Austria with the PE ratio 64 per cent below the 5-year average. More understandable is the next cheapest – Japan – with the forward PE ratio (15.28) more than 53 per cent below the 5-year average.
  • The forward PE ratio for the Australian market stands at a seven-month low of 12.7, which is 14.2 per cent below the 5-year average. Now clearly with investors far more conservative across the globe, the current lower PE ratios may prove the “new normal.” Unfortunately we won’t know the answer on this one for some time.

Interest rates, currencies & commodities

  • It seemed that the Aussie dollar would remain permanently parked at US101 cents, but along came the Japanese nuclear crisis to shake things up. In the past, the Aussie dollar has been the first casualty of global crises, but this time around the reaction has been reasonably muted. The Aussie did fall away to below US98 cents, but then bounced. Most investors still vividly remember the Aussie at US47.75 cents in April 2001. CommSec continues to believe that the Aussie will hold US99-102 cents through to midyear before easing to US92 cents later in 2011 as attention shifts to tighter monetary policy in the US.
  • With the Japanese nuclear crisis taking centre-stage, the other “crisis” – in the Middle East – moved to the back burner. This crisis again is one driven more by fear and speculation, rather than fundamentals. Once stability returns to the region and there are reduced fears of oil supply disruptions then the price of crude will probably return to US$85-90 a barrel. The world is well supplied with oil as highlighted by US gasoline inventories at 21- year highs.
  • The Japanese situation is adding a complication to the interest rate outlook. At one point last Tuesday the chances of an April rate cut had soared to over 60 per cent. Financial markets still believe that rate cuts are more likely in coming months, rather than rate hikes. But the situation is fluid. CommSec believes a longer period of interest rate stability is more likely.

Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report.

The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them.

Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

]]>

The big picture

  • If you wanted to get a good textbook example of a ‘fear-driven’ event it is the so-called Japanese nuclear crisis. It started with one of the biggest earthquakes in the modern era. But clearly that earthquake wouldn’t have had a major impact on global financial markets if it weren’t accompanied by a destructive tsunami and then by the damage to nuclear facilities in north-eastern Japan.
  • The panic that followed news of radiation leakage at the nuclear plants was understandable. Most investors haven’t had any experience with such events, and the initial response was to dump shares and commodities and to factor in significant monetary stimulus.
  • It is hard to work out how Australia would be affected by nuclear crisis in Japan, but still investors dumped stocks, driving the local sharemarket down by over 2 per cent. The Aussie dollar fell more than US3 cents and the chances of an imminent rate cut soared to more than 60 per cent. Clearly there was a lot of uncertainty about the ramifications of a nuclear plant meltdown. But that was also fed by misinformation about nuclear power and the industry more broadly.
  • While questions are being raised about the future of nuclear power, it is worth highlighting that many countries across the globe already have high reliance on nuclear power without key problems and other countries are pushing ahead with plans for nuclear power plants. In France, nuclear plants provide 80 per cent of power and there have been no major incidents. In China there are 13 nuclear power plants with 25 currently under construction. In addition there are a further 52 plants planned and another 72 plants proposed.
  • But what about the Japanese situation? Well, as always it is best to defer to the experts – impartial experts, that is, those that neither promote, nor are fierce critics of, the nuclear industry. One such person is Dr Josef Oehman from MIT. He states that “there was and will not be any significant release of radioactivity.” Perhaps. It depends how you define “significant”.
  • But Dr Oehman has gone into significant detail in explaining how the Fukushima plants work, the type of fuel they use and containment devices that are in place. Eventually, considered explanations like this will filter out through the media and into the wider community. But the risk in the short-term is that misinformation will continue.
  • Hopefully the event will have a positive side in that there will be greater understanding of the nuclear power industry, how each of the plants work, as well as more focus on the safety mechanisms in place. For Japan, the other implication of the damage to the nuclear power plants is on going power needs. In the short to mediumterm, Japan will have to rationalise power and that will hamper economic recovery.
  • Last week we spoke about a thinning out of the economic calendar. Well the coming week calendar looks like a virtual wasteland in terms of fresh economic or financial events to provide direction for investors. Certainly that is the case in Australia, although there is still a good spattering of economic data in the US.
  • In Australia, the week kicks off with February data on imports to be released on Monday. This is one of the more timely economic indicators and highlights spending made by consumers and businesses. But there are also complications such as the influence of the Australian dollar, lumpy imports like airplanes and rising fuel imports caused by higher oil prices. But the data is certainly worth dissecting.
  • Also released on Monday is data on enterprise bargaining claims, but the figures are dated, covering the September quarter last year.
  • Then there is a gap until Thursday when the Reserve Bank releases its bi-annual Financial Stability Review and assistant governor Malcolm Edey delivers a speech. The financial sector will be given a clean bill of health while Edey has the opportunity to outline Reserve Bank views on the Japanese situation.
  • And on Friday the Bureau of Statistics releases its financial accounts for the December quarter. These figures are a treasure trove of information including data on overseas holdings of shares, financial wealth levels of households and cash holdings by businesses and superannuation funds.
  • In the US, the housing market is centre-stage over the coming week. On Monday, February data on existing home sales is released with home price figures on Tuesday and new home sales on Wednesday.
  • Existing home sales are expected to have softened from a 5.36 million annual rate in January to 5.20 million in February. Despite soft home prices, the market won’t fundamentally recover until there are less people on dole queues. But new home sales are expected to have edged higher from a 284,000 annual rate in January to 290,000 in February. Harsh winter weather has been affecting the monthly readings in this series.
  • Also on the agenda this week is the Chicago Fed index on Monday, Richmond Fed manufacturing survey on Tuesday, durable goods orders on Thursday and economic growth (GDP), consumer sentiment and corporate profits on Friday.
  • Economists expect that the final estimate of economic growth in the December quarter (they have three attempts at estimating growth) will be confirmed around 2.9/3.0 per cent. In Australia, economic growth stands at 2.7 per cent so you can understand the willingness of foreign investors to put their money to work in the US at present.

Sharemarket

  • In light of the fear-driven sell-off on global sharemarkets in response to the crisis in Japan, it is always useful to come back to fundamentals. We have assessed 12-month forward price-earnings ratios for a raft of markets across the globe provided by FactSet.
  • Of the 70 regions assessed, only 14 have PE ratios that are higher than their 5-year averages. For the “world” market, the current PE ratio of 13.61 is almost 10 per cent lower than the decade average and stands at a sevenmonth low. Interestingly the most under-valued region is Austria with the PE ratio 64 per cent below the 5-year average. More understandable is the next cheapest – Japan – with the forward PE ratio (15.28) more than 53 per cent below the 5-year average.
  • The forward PE ratio for the Australian market stands at a seven-month low of 12.7, which is 14.2 per cent below the 5-year average. Now clearly with investors far more conservative across the globe, the current lower PE ratios may prove the “new normal.” Unfortunately we won’t know the answer on this one for some time.

Interest rates, currencies & commodities

  • It seemed that the Aussie dollar would remain permanently parked at US101 cents, but along came the Japanese nuclear crisis to shake things up. In the past, the Aussie dollar has been the first casualty of global crises, but this time around the reaction has been reasonably muted. The Aussie did fall away to below US98 cents, but then bounced. Most investors still vividly remember the Aussie at US47.75 cents in April 2001. CommSec continues to believe that the Aussie will hold US99-102 cents through to midyear before easing to US92 cents later in 2011 as attention shifts to tighter monetary policy in the US.
  • With the Japanese nuclear crisis taking centre-stage, the other “crisis” – in the Middle East – moved to the back burner. This crisis again is one driven more by fear and speculation, rather than fundamentals. Once stability returns to the region and there are reduced fears of oil supply disruptions then the price of crude will probably return to US$85-90 a barrel. The world is well supplied with oil as highlighted by US gasoline inventories at 21- year highs.
  • The Japanese situation is adding a complication to the interest rate outlook. At one point last Tuesday the chances of an April rate cut had soared to over 60 per cent. Financial markets still believe that rate cuts are more likely in coming months, rather than rate hikes. But the situation is fluid. CommSec believes a longer period of interest rate stability is more likely.

Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report.

The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them.

Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

The post Investor Signposts: Week Beginning March 20 2011 appeared first on AdviserVoice.

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