June 2013 Review Comments
Written by Tony Gray   
Wednesday, 19 June 2013 16:03

Portfolio Valuation & Comment

A step change in sharemarket behaviour occurred in late May.  Good economic news in the US is now greeted negatively by markets!  While this is contrary to what many investors expect, it is quite rational from a theoretical valuation approach.  The impending wind-down of QE in the US is resulting in long bond yields rising – both in Australia and the US.  This reduces the present value of future cash-flows.  The bigger the rise in yield the larger the valuation impact.

This is supported by the observation that price-earning multiples for markets are higher in a low inflationary/low interest rate environment, but that these multiples decline if the economy either moves towards deflation or inflation.  Right now ‘the market’ has decided that a lower multiple applies to sharemarkets.

In my opinion the price falls of recent weeks have largely adjusted for the changed world outlook for bond yields and it is now relatively easy to find stocks representing ‘fair value’.  Buying is another matter – in the short-term my view is to identify individual assets that fit portfolios and buy when the price behaviour has stabilised or turned positive.  In the meantime, the lower asset prices fall the better – as it creates the opportunity to buy cash-flows cheaper – hence my recurring advice to build ‘opportunity’ cash reserves.

Having this discussion on an individual portfolio basis is important – but unfortunately with a fortnight to go until the end of the financial year my availability right now is restricted.  My request is to phone or email with any specific requests or for a quick assessment of required/recommended action.

The Future of Financial Advice reforms come into force on 1 July and will mean some adjustments in the manner in which TG Financial operates.  We are looking to recruit an adviser with SMSF and share experience and I would be grateful if you know of a suitable person looking for a change. 

Best wishes,


A.W. (Tony) GrayBCom, LLB, Dip FP, GDipAppFin, CFP, FFin
Principal, TG Financial

Please treat the above comments as General Advice or general information, with no action to occur until we have considered with reference to your financial position, needs and goals.


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