ABE Weekly 18/11/2020

Market Update  

 

“Why does man sacrifice his wealth at the expense of his health, then sacrifices his wealth to recuperate his health” 

 

Pfizer and BioNTech, two pharmaceutical firms, announced that their vaccine against covid-19 is more than 90% effective, according to early results from trials. The high success rate raised hopes of a quicker return to normality than previously expected. Other pharmaceutical firms are also working on vaccines and are expected to make announcements in the coming weeks. Current projections suggest 50m doses of the Pfizer-BioNTech vaccine will be available in 2020, rising to 1.3bn the following year. On the day of the announcement, Pfizer’s and BioNTech’s share prices surged 8% and 14%, respectively. 

 

The RBA released its November policy meeting minutes this week. They didn’t really say anything new, and as expected centred on continuous stimulation of the economy with a focus on QE. The economic outlook was still very much dependent on successful containment of COVID. It is unlikely rates will be cut again and there would be no rate increases for at least 3 years based on an inflation target range of 2-3%. The one wild card was the global economy and specifically containment of what looks to be another wave of COVID. 

 

On a positive note, as we go to print the Australian unemployment numbers came out indicating a rise of 178,800 jobs versus expectations of a fall of 20,000. Yet another sign the economy is slowly turning around. 

 

ABE’s Pallas Capital Note bookbuild has been gathering momentum. Aside from new investors most of our current investors are either rolling existing positions into Pallas or adding to portfolios. Please refer to the link for some background on the offer and rationale for being a qualified investment`https://www.fixedincomenews.com.au/pallas-capital-high-yield-bond-paying-7-5p-a/ and to apply https://www.bondexchange.com.au/products/pallas-capital/ 

 

We can’t emphasize enough that interest rates look like they will continue to fall going forwards. With official cash rates at 10bp there is still room for another cut. Despite what the experts say regarding negative rates we are almost there.  

 

We have weighed up the pros and cons of the Pallas offer, and we are very comfortable with the investment metrics. We still believe investors remain far too overweight equities compared to other asset classes and to some extent are still in the dark with regards to the benefits of fixed income. Bank stocks, once the staple of income generation, are now not as reliable as they once were. Dividend cuts and heightened market volatility only strengthen the case for investments like Pallas.  

 

The chart below (firstmac) really highlights just how favourably property compares to other asset classes in terms of risk/reward. As one can see property is a great balance between the two further strengthening the case for the Pallas offer.