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Morningstar runs the numbers

Lewis Jackson  |  20 Dec 2021Text size  Decrease  Increase  |  
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There’s hope for those behind on retirement savings, with Morningstar modelling showing that adding an extra 5% to super contributions could mean $200,000 more in retirement: “Alex starts her first job at age 22 with an annual salary of $55,000. Her employer contributes 10% of her pre-tax salary into a MySuper fund. At age 30, she takes 5 years off work. During this time, she makes no contributions to super. If Alex returns to work at age 35 and relies on the mandatory SG system, she'll retire at age 67 with around $550k in super (adjusted for inflation) – a respectable amount but well off where she'd be if she hadn't taken time off. However, if she sacrificed an additional 5% of her pre-tax salary into super, she could add around $200k to her final balance.”


Oil use is set for a modest fall of 11% over the next three decades with continued use in industry and heavy transport cushioning declining use for passenger vehicles: “Caldwell’s [Morningstar’s] base case sees oil use shrinking 11% by 2050 compared to 2019 levels, versus the 46% drop expected by energy bears. Business-as-usual forecasts expect a slight rise of 4%. Declinist forecasts rely on falling oil use in passenger vehicles, road freight, air travel and shipping, thanks to electrification, renewable fuels and high carbon taxes. Caldwell concurs with bullish forecasts for electric vehicles but argues other sectors lack economically viable renewable alternatives.”


US inflation marked its biggest annual jump since 1982 in November although Morningstar expects prices to fall into 2022: “The Consumer Price Index rose 6.8% in November from year-ago levels. That marked the steepest year over year increase since 1982. The November increase “was driven mainly by the same categories which have caused excess inflation throughout 2021, namely energy and vehicles,” says Preston Caldwell, Morningstar’s chief economist. ‘We continue to believe that the price increases seen in these categories will unwind as supply constraints are relieved, which will contribute significant deflationary pressure. Energy prices already look set to fall given that oil and gas prices have fallen in December. The timing for vehicle price relief is more uncertain, but still likely to occur by the second half of 2022.’”


New energy projects burnish the green credentials of the oil and gas industry but expected returns fall short of the 15% traditionally required oil investments, writes Peter Warnes in his 2022 outlook: “The green/climate change movement is taking all before it and is likely to bleed trillions from corporates Perhaps the management teams so committed to the cause could enlighten shareholders as to the ultimate cost of the bill they will be ultimately footing, as well as the impact on profits. Just recently, Woodside Petroleum admitted the payback time on its $7 billion investment in new energy will be double that of oil projects, with target returns of at least 10% compared with at least 15% for oil projects and 12% for gas.”

Charts from last week

The US Federal Reserve is telling investors to expect rate hikes soon (here)

Oil still has a future according to Morningstar (here)

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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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