Is our Aussie market the most boring in the world?
I mean, it just can’t seem to move higher. Stock markets all around the world breached their all-time highs years ago. We’re still languishing well below the peak reached in October 2007, coming up to exactly 10 years ago.
Part of the reason for that is dividends. Relative to the rest of the world, Aussie companies pay out a high proportion of their earnings as dividends.
If you assume the market’s dividend yield is around 4%, then over 10 years that’s 40% in value made up of income, not capital growth. If dividends were half this rate (which is closer to the rest of the world’s experience), our market would probably be back above the old highs by now.
But it’s not. And let’s not allow facts to get in the way of a good story. The ‘story’ is that of Australia being a laggard. While the rest of the world is a ‘growth’ stock, we’re a boring old ‘value’ company, plodding along with low growth and paying out earnings as dividends due to a lack of growth opportunities.
We’re also managed particularly poorly. Instead of focusing on what’s good for the company and its shareholders, ‘Australia Pty Ltd’ has a management and board constantly bickering and trying to maintain power.
Given the pace of change the world is going through, it’s quite a sad state of affairs. We seem content to just have our ‘world class’ banks and miners digging up dirt for China.
We’ve succumbed to the myth that we punch above our weight on the world stage. In truth, we don’t really do so any more or less than other countries. We just like to tell ourselves comforting stories that we do. And then we go back to speculating on rising house prices.
Getting back to the market, have a look at the painful chart below. It shows the Aussie benchmark index, the S&P/ASX 200.
As you can see, it’s getting dangerously close to breaking down to new lows. It’s trying to hang in there, but the overall market looks weak right now. 5600 points could come about pretty quickly.
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I mentioned the Aussie banks before. Yes, they’re strong and world class and all that. But they are also the next major sector in line for digital disruption.
Given the major banks’ earnings and market capitalisations account for more than a quarter of the overall market, it’s hard to see how the S&P/ASX 200 will fire in the years ahead. Growth will have to come from elsewhere.
Over the weekend, the Aussie banks announced they would scrap ATM fees in a move that could see them lose a collective $100 million in revenues. While that sounds like a lot, it’s not much. But given the ATM charge has no bearing on the economic cost, the margins on that revenue are high.
Apparently, the banks had been discussing such a move for a while. But the beleaguered Commonwealth Bank of Australia [ASX:CBA] moved first, desperate for some positive PR. And of course, the three other lemmings followed the CBA’s move within hours.
All for the customer, of course. They all recognised at exactly the same time on a Sunday that customers deserved a break from a ridiculous fee charge.
This is a sign of things to come. ATM use is in decline. As technology sends transaction costs towards zero, banks will no longer be able to charge exorbitant fees for standardised, commoditised services.
The uptake of blockchain technology will have major implications for the banks, not just in Australia, but all over the world. Blockchain technology is what cryptocurrencies are built on. It’s what gives them value.
You may think of this as a niche market, and it is right now, but it’s going to be huge. People already know this. It’s why they’re flocking to Sam Volkering’s brand new service, the Secret Crypto Network.
But you’d be mistaken to think cryptos are just an investing fad. Think of it like an iceberg. Cryptocurrencies are the part that sticks out of the water. But the larger part that you can’t see is the blockchain technology.
In the next decade, it will infiltrate just about every part of the economic system…in a good way. So it’s something that you should start getting your head around.
Either way, banks will need to, that’s for certain. No one knows how the technology will play out on the banks’ business models. But it will have a big impact in the years ahead.
How long will it take an arrogant banking oligopoly to sit up and take notice? That will be interesting to watch.
Editor, Crisis & Opportunity