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Morningstar runs the numbers

Lewis Jackson  |  05 Jul 2021Text size  Decrease  Increase  |  
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$34 billion

That’s the dragon’s hoard Australia’s major banks are sitting on, most of which may soon be returned to shareholders: “Nathan Zaia estimates the Australian banking sector is sitting on $34 billion in capital excess of regulatory requirements, up from just $3 billion in March 2020. That could mean up to $5.90 per share for Commonwealth Bank. The hoard was accumulated through 2020 as the banks prepared for a long recession and set aside money for loan losses. But with the ASX 200 Financials up 15 times its 5-year average this financial year and regulators keen to see banks focus on their core business, Zaia thinks ‘most of it’ should be returned to shareholders.”

522.6 per cent

I recapped the past financial year, and the Aussie share market’s winners and losers, writing: “Well-known names such as Appen, AGL, AMP and TPG all earnt a wooden spoon this year. Several small miners struck gold. Lithium miner Pilbara Minerals was carried to a stomping 522.6 per cent return on a wave of enthusiasm for electric vehicles and batteries.”

80/20

Reliance on dividends has risen as interest rates and bond yields have fallen. Record-beating equity market returns obscure the risks for conservative investors, writes Graham Hand: “The biggest challenge for most retirees is making the money last in this world of increasing life expectancy, low interest rates and likely lower returns from equities in coming decades (notwithstanding that the All Ords index rose 26% in FY21, its best performance in over 30 years).

"It's easy to say 80/20 is the new 60/40 but that comes with added risk. For most of the last 50 years, a portfolio could significantly allocate to bonds and still achieve a reasonable 6% return. Now the portfolio needs to rely on share dividends. One day, this extra risk will end badly for conservative investors who will then realise that the new role of term deposits and bonds is to protect capital.”

90 per cent

The ASX’s latest member, digital property exchange Pexa, earnt a rare wide-moat rating thanks to its lock on the industry, I write: “The firm is Australia’s only operating electronic conveyancing platform and has around 80 per cent of the market. It's platform removes the cumbersome and error prone task of in-person property settlements by moving transactions online. Morningstar senior equity strategist Gareth James expects market share to reach 90 per cent longer term, in a special report out Wednesday. "We don't expect competitors to develop a superior platform, nor do we expect price-based competition to result in significant market share losses for Pexa," he says.

You can read the full special pre-IPO report here

40 per cent

Emma Rapaport fires off a new salvo in the long-running debate over investing in crypto in last week's editor's note: “Digital finance broker Savvy pushed out new research last month showing that 40% of Australians are likely to buy cryptocurrency in 2021. I'll admit I was rather sceptical. The ASX's 2021 investor survey showed just 4% of 'wealth accumulators' intended to invest in the category 'other' - which presumably includes crypto - over the next 12 months."

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"I made my position clear in May's editorial. Are people making money? Sure, some of them, on paper, lots of it. But others are losing it, rapidly. Don't buy anything you don't understand. If you are taking a punt on  'the new gold' or 'the currency of the future', ensure it’s part of a total portfolio approach. Rather than betting your life savings on it, carve out a small fraction of your investable wealth for crypto. Research your broker and understand the fees and the Ts&Cs."

Charts from last week - Bonds and interest payments 

Falling bond yields have encouraged income investors into equity dividends (here)

Falling bond yields have encouraged income investors into equity dividends

Source: T.Rowe Price with data from Bloomberg Finance

(Click to enlarge)

Even as debt rises, interest payments are forecast to remain low for decades to come (here)

Even as debt rises, interest payments are forecast to remain low for decades to come


Source: Treasury

(Click to enlarge)

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is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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