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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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Markets surge as Fed hints at July cut

Fed’s Waller hints at July rate cut, boosting investor sentiment; Trump imposes 50% tariff on Brazil, provoking minimal market response.

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Fed’s Waller hints at July rate cut, boosting investor sentiment; Trump imposes 50% tariff on Brazil, provoking minimal market response.


Fed Governor Christopher Waller, tipped as a possible next Chair, signalled a July rate cut is on the table, calling current policy “too tight.” That’s been enough to supercharge investor sentiment.

Meanwhile, Trump has slapped a surprise 50% tariff on Brazil, sparking political tension. Brazil’s President responded with tough talk on “sovereignty,” but markets barely blinked, the Brazilian real dropped just 1%.

#StockMarket #FederalReserve #Bitcoin #AUD #TrumpTariffs #TickerNews

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Trump’s copper tariff shakes global markets

Trump’s 50% copper import tariff aims to strengthen U.S. manufacturing, impacting global supply chains and Chile significantly.

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Trump’s 50% copper import tariff aims to strengthen U.S. manufacturing, impacting global supply chains and Chile significantly.


President Donald Trump has unveiled plans to impose a 50% tariff on copper imports, a move set to rattle global supply chains and redraw the industrial map.

The tariff will hit within weeks, with Chile, the world’s largest copper exporter, expected to bear the brunt.

While Australia’s direct copper trade with the US is limited, analysts say the real message is strategic: the US is reinforcing its domestic manufacturing power.

#CopperTariff #DonaldTrump #TradeWar #GlobalMarkets #TickerNews

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RBA unexpectedly keeps interest rates steady at 3.85%

RBA surprises with decision to maintain interest rates at 3.85%, impacting economic forecasts and housing market activity.

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RBA surprises with decision to maintain interest rates at 3.85%, impacting economic forecasts and housing market activity.

In Short:
The Reserve Bank of Australia has kept its cash rate at 3.85% despite concerns from the Housing Industry Association about its impact on new home construction. Although inflation is within target and there’s some market confidence, households are under financial strain amidst economic uncertainties.

The Reserve Bank of Australia has decided to maintain the cash rate at 3.85% following a split vote of six to three. This unexpected decision comes as the Housing Industry Association warns that these rates remain restrictive, potentially hindering new home building.

Senior economist Tom Devitt stated that the rates will delay necessary building activity but noted improved market confidence following previous rate cuts.

Current inflation data shows the RBA’s preferred measure has been declining and remains within the target range. However, household spending is under strain, with Australia experiencing a per capita recession since mid-2022.

Labour costs

The RBA’s decision was influenced by concerns over productivity growth and high unit labour costs, affecting its inflation outlook. While some economists anticipated a rate cut, the RBA opted for caution due to economic uncertainties, both domestically and internationally.

The bank acknowledged gradual recovery in private demand and household incomes but highlighted ongoing challenges in passing cost increases to final prices.

Despite the hold on rates, price rises in essentials like petrol continue to impact Australian households. The RBA emphasized the need for ongoing assessment before making future rate changes, suggesting a careful approach in response to evolving economic conditions.

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