August 2019 Newsletter

Amongst the plethora of news, two factors appear to be impacting the market more than others:

Trade war – impacting confidence

The market has a strange habit of finding one lightning rod through which short-term movements are predicated; this time the short-term focus point is the current trade war/standoff between the USA & China.

As a result, volatility has increased as short-term focused speculators try to predict the effect of various comments and actions by both parties. The constant news-flow, generally negative, is impacting confidence which is leading to increased volatility.

History suggests that ‘this too will pass’, although many believe ‘this time it’s different’.

We prefer to err on the side of history, and hold positions where fundamentals remain attractive in the belief that fundamentals prevail in the long-term.

Reporting season – fundamentals

With over 50% of ASX 200 companies having reported, companies beating expectations are similar in number to those missing (i.e. 25%).

Industrials are out-performing resources as this sector is seeing cost inflation (wage growth) –
Treasurer Frydenberg may get his wish of wage inflation. Company guidance has been muted, as corporates temper expectations.

As stated in previous notes (and above), our prerogative is to invest in businesses at attractive prices and hold those businesses if the fundamentals remain appealing.

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