Did you notice a quarter of your investment gains for 2017 disappear this week?
It would have been hard to miss, if they had. But if your investments are weighted to the Aussie market, that’s the kind of bad news you were looking at this week. In the International Monetary Fund’s latest World Economic Outlook, their projection for Australia’s economic growth in 2017 was downgraded from 3% to 2.2%.
The previous 3% projection came just six months earlier. What happened in such a short space of time to hack off 26.6% of our economic growth? The short answer is, bad weather.
The IMF pointed to the impact of Cyclone Debbie which, as well as causing billions in damage and taking 14 lives, significantly affected Australia’s coal exports. With housing investment also undermined by bad weather, it’s not hard to see why the revised outlook is so grim. Housing and resources remain Australia’s two major industries.
Treasurer Scott Morrison was on the defensive, pointing the ABC to ‘encouraging’ economic data, such as the NAB’s recent business survey to counter the IMF.
It’s true that the NAB sees Australian business conditions as solid. But as this downgrade demonstrates, our economy remains dangerously dependent on just two key sectors. Any threat to resource exports or housing, and through housing the banks, could have a disproportional impact on Aussie investors.
Resource exports have been buoyed by increased demand from the likes of China, with its massive infrastructure investments along the ‘New Silk Road’. But as Ryan Dinse wrote in Money Morning yesterday, a return to the mining boom could put upward pressure on interest rates. And that would threaten housing, especially in the highly leveraged east coast cities.
So the success of one of Australia’s key pillars may be a threat to the other.
This couldn’t come at a worse time for the banking industry. Around the world, the rise of cryptocurrencies has finally begun to be taken seriously in the mainstream. Governments worldwide are variously banning, embracing or trying to legislate around crypto. But whatever their approach, they’re no longer able to ignore it.
And as Sam Volkering, our resident crypto expert, has often explained, even if governments choose to ban cryptocurrencies, the blockchain technology they’re built on isn’t going away. It’s this blockchain tech that could pose the greatest threat to old-school banking and finance. New styles of financial technology built on the back of it could cut out the need for middlemen in billions of dollars’ worth of transactions.
With the ASX’s heavy weighting towards the big four banks, every Aussie investor owes it to themselves to understand cryptocurrencies and blockchain tech. You can read more about Sam’s insights here.
The banks may still be riding high today. But as Sam has argued, if you wait for the fall before you learn about the alternatives, it could be too late.
This week in Money Morning
Ryan got to open the week with a happy little ‘I told you so’ moment about bitcoin. We trust you’ll excuse his brief self-indulgence. Especially if you paid attention to his prediction back in August, and profited by it.
If not, don’t worry. This latest development is already driving fresh cryptocurrency gains. But Ryan explained that there’s still a long way to go. To read why, you can find Monday’s Money Morning here.
On Tuesday, Ryan looked at the latest series of products being launched by tech giant Alphabet — until recently known as Google, and still owner of the search engine.
Alphabet’s name change came as the company expanded into many other parts of the technology market. But as Ryan explained, the most interesting thing for tech investors may be a something that was left out of this announcement, rather than something that was included. Check out Tuesday’s Money Morning here to read why.
Then on Wednesday, Ryan looked at the emerging possibility of a major surge in oil prices. He explained why changes in demand and supply could be on a collision course. Even if you’re not invested in the energy industry, Ryan argues this story will have an effect on you. Read the details here.
The theft of intellectual property is just an unfortunate cost of doing business with China. Locally grown imitators of any successful foreign company are pretty much inevitably going to pop up there. But just because this is the way things have ‘always been’ doesn’t mean they always will be. As Ryan wrote on Thursday, US President Donald Trump is taking aim at China’s intellectual property theft. But are Trump’s actions a step in the right direction? Or is his volatile, abrasive nature threatening to spark a trade war that will harm us all? Read more here.
Markets closed at record highs in the US on Thursday night. And the good news wasn’t just in the US. Other international markets have put in strong performances. At the same time, alternative assets like bitcoin have boomed. But here in Australia, our market is still 17% below where it was a decade ago.
Can the Aussie market catch up to the rest of the world’s highs? Or will it continue to lag, or even fall? In Friday’s Money Morning, Ryan looked at the two sectors that will likely decide where our market heads from here, and their prospects. Read the details here.
Until next week,
Editor, Money Weekend