ABE Weekly 05/08/2020

Market Update  

So probably no surprise that the RBA kept rates unchanged at 0.25% – there is still a school of thought that suggests rates may turn negative – can you imagine being paid to borrow money and having to pay the bank to save.

You can feel the frustration in the air as people really start to wonder when we’ll start to see some light as far as COVID is concerned. For many, especially in the US, we expected things would be back to some sort of normality but now it seems there is no end in sight. Talk of a vaccine being ready by December is in the view of the writer unlikely although for the sake of everyone would be happy to be wrong. As a renowned economist once said, “if you’re not confused you don’t know what’s going on”.

On the home front Victoria has gone back to Stage 4 lockdown and at this stage the situation in NSW seems to be under control – touch wood – and we hope it stays that way.  Businesses are still in recovery mode, it’s still unknown if JobKeeper will be extended suffice to say that when deferred mortgage relief runs out no one really knows what the fallout will be how big the impact will be on the banks suffice to day we do expect there will be an adverse effect on dividend payments and therefore bank valuations. With equity market valuations already stretched how will the market the react.

And it does feel like I’m talking my own book and something we continue to advise is that investors should seriously consider increasing holdings of fixed income assets away from risk assets such as equities. We have mentioned it before but worth reiterating that the average retail fixed income portfolio holding is only 10-15% of the total as compared to other developed countries which hold more than 40%. Normally a contrarian indicator but there is more talk on valuations particularly in the US suggesting a possible pullback but people keep getting proved wrong.

In terms of product we are currently working on a Yield Enhanced Security or Deferred Purchase Agreement over Rolls Royce PLC yielding approx. 4.7% with a maturity of approx. 5 years all denominated in AUD. Rolls recently announced a JV with Virgin Galactic which adds credence to the quality of the business and security on offer. Attached in the relevant article.

https://www.bloomberg.com/news/articles/2020-08-03/virgin-galactic-signs-rolls-royce-deal-to-develop-mach-3-plane

Another attractive security we are currently working on is a note over Pallas FM Trust yielding 7.5% maturing 30 June 2024. $20m is to be raised by the issue of 2,000 Notes of $10,000 each. The issue may be increased to a maximum of $30m demand pending.

For further information on either of these products please contact The Australian Bond Exchange.

We have recently been very active in NXTDC Fix 2022 and Centuria Fixed 2023

As we’ve mentioned before, we are always looking to improve every aspect of our business including the weekly newsletter and would love to hear your comments and suggestions on what we can do to make it value add.