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Don’t bank on a recession just yet: Morningstar CIO

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Dan Kemp, the global chief investment officer of Morningstar, has downplayed concerns of a global economic slowdown resulting from ongoing central bank tightening

Kemp warns institutional investors against focusing on a single scenario in a volatile market, in a recent interview with Investment Magazine, emphasising that trying to predict the future based on a single theme or narrative is a risky strategy.

Instead, he suggests building portfolios that can withstand a range of outcomes, including recessions, growth environments, and inflationary conditions.

“People see comments or news about an expected recession and the temptation is to position a portfolio for one particular macroeconomic environment,” he says.

“The danger is that if you focus on a narrative, you lose sight of valuation, so you can end up overpaying for a particular theme, whether that’s economic or technological or anything else that people are starting to get excited about.”

“Once a particular scenario is prominent in the minds of investors, it’s likely to be priced in and then you’re unlikely to get any benefits from acquiring those assets.”

The tightening policies of central banks, aimed at curbing persistently high inflation, have raised worries among investors that further rate hikes could push major economies into a prolonged recession.

This has posed challenges for professional investors who traditionally relied on index-like exposures or 60/40 equity-bond portfolios but are struggling to generate good returns amidst volatile equities and rising bond yields.

According to data from the Australian Prudential Regulation Authority, superannuation funds in Australia recorded negative annual returns of -5.5% in 2022, with one in five investment options generating returns below their benchmarks.

Kemp, who oversees $265 billion in assets through Morningstar’s investment management subsidiary, acknowledges that professional managers are susceptible to cognitive biases just like individual investors.

However, they have a better understanding and ability to overcome these biases. One such bias has been investors’ willingness to overpay for certain assets, such as energy or technology stocks.

Morningstar, which was optimistic about energy companies in 2020 when they were priced for low energy prices, has been reducing its holdings in the sector as values now reflect inflation and high energy prices.

In the current scenario, it is important to consider how inflation is impacting profit margins. While inflation has historically eroded profit margins as companies struggled to pass on higher wages and input costs, the current situation has been different.

“What we’ve seen in this cycle is fascinating. Inflation seems to be supporting some profit margins, particularly in US equities, because they’re able to pass on price increases to customers who are expecting price increases because of that background level of inflation,” he says.

Some asset classes traditionally used for inflation protection are already priced so high that investors need to be cautious about the sustainability of margins in the future.

Morningstar is finding fewer opportunities at the industry or sector level and is increasingly favouring country-based investments, such as in Brazil, South Korea, China, and Germany.

Kemp does not see many opportunities in the Australian market, attributing the underperformance of the benchmark ASX 200 index, which has only gained 3.6% for the year, to the dominance of materials and financial stocks.

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Trump’s tariffs disrupt Australia’s trade, impacting economy

Donald Trump’s trade tariffs could negatively disrupt Australia’s economy, impacting exports like beef and canola oil amid global trade tensions.

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Donald Trump’s trade tariffs could negatively disrupt Australia’s economy, impacting exports like beef and canola oil amid global trade tensions.

In Short

Trump’s trade tariffs threaten Australian exports, notably canola oil and beef, with China’s retaliatory export curbs exacerbating the situation.

A full trade war could drastically impact Australia’s iron ore industry and currency stability, complicating its trade relations amidst rising global competition.

Donald Trump’s new trade tariffs could have adverse effects on Australian exports, including canola oil, beef, and critical minerals.

China has implemented retaliatory export curbs on metals essential for technology, raising concerns as China controls much of the global supply. While the US may seek alternatives in countries like Australia for strategic minerals, tensions with Canada complicate this shift.

However, a full-scale trade war would negatively impact Australia’s largest commodity export, iron ore. A weakening Chinese economy could reduce demand for steel-making materials, harming Australia’s trade interests. Trump’s potential expansion of tariffs on aluminium and steel poses additional risks to local manufacturers amid fears of cheap imports undermining the market.

The beef industry could also face disruption. As the US cattle herd declines, tariffs might disrupt Australian beef exports, leading to price hikes. Conversely, Canada could increase canola exports to non-US markets, intensifying competition for Australian oilseed farmers.

Furthermore, the recent tariff announcements have caused fluctuations in the Australian dollar, which hit low levels against the US dollar initially. Subsequent relief for Canada and Mexico caused a brief recovery, yet ongoing tariff disputes could negatively impact the currency’s stability.

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Trump’s tariffs raise prices on Chinese imports

Trump’s new 10% tariff on Chinese imports could raise prices for electronics, clothing, cars, and home appliances in the US.

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Trump’s new 10% tariff on Chinese imports could raise prices for electronics, clothing, cars, and home appliances in the US.

In Short

President Trump has imposed a 10% tariff on imports from China, potentially increasing costs for US consumers on electronics, clothing, cars, and appliances. The National Retail Federation urges negotiations to mitigate price hikes while analysts predict significant increases in product prices.

President Donald Trump has implemented an additional 10% tariff on imports from China, which could potentially rise further.

This move is likely to result in higher prices for various goods in the US, particularly consumer electronics, clothing and textiles, cars, and home appliances.

In 2023, the US imported $427 billion worth of goods from China. Notably, consumer electronics sales included substantial imports of cellphones and laptops. The Consumer Technology Association estimates that tariffs could raise laptop prices by up to 68%, video game consoles by 58%, and smartphones by 37%.

In clothing and textiles, imports amounted to $19.6 billion in 2023. Retailers may increase prices of apparel and accessories due to these tariffs.

Cars are affected as well, with US imports of car parts valued at $14.6 billion. Analysts suggest that domestic automakers sourcing parts from China may be compelled to raise prices.

Home appliances also face price increases. The National Retail Federation projected that the average price of a basic fridge could rise from $650 to $776.

The NRF has urged all parties to negotiate solutions to strengthen trade relations and avoid passing costs on to American consumers.

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Cryptocurrency drops amid Trump’s trade war concerns

“Cryptocurrency Prices Plunge Amid Market Uncertainty from Trump’s Trade War Impact”

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“Cryptocurrency Prices Plunge Amid Market Uncertainty from Trump’s Trade War Impact”

Cryptocurrency markets have experienced a significant downturn amid concerns over ongoing trade tensions.

The fluctuations in value seem closely tied to Donald Trump’s trade policies.

Investors are reacting to uncertainty surrounding international trade agreements.

Bitcoin and other cryptocurrencies have seen sharp declines in recent days.

Analysts suggest that the instability in traditional markets is influencing investor sentiment in cryptocurrencies.

This latest slide raises questions about the resilience of digital currencies in volatile economic environments.

Market observers are monitoring the situation closely for further developments.

Traders are advised to exercise caution given the risk associated with current market conditions.

Potential impacts on the broader economy could also influence the cryptocurrency landscape.

Overall, the situation reflects growing anxiety among investors regarding future market stability.

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