The advice and investment week in focus - 23rd June

By Drew Meredith

1) While the AX and ASIC remain the most trusted financial organisations in the country, banks and financial advisers are clawing back into favour after consumer confidence troughed in the wake of the Hayne royal commission. The ASX released its 2023 Australian Investor study, Tuesday morning, which surveyed over 5,000 adults – both investors and non-investors. The study was completed in conjunction with researcher Investment Trends. Among the key findings was a stark movement in the trust Australians place in financial services market pillars, with the public rewarding efforts to reshape the banking and financial advice industry after the royal commission uncovered widespread levels of misconduct, headlined by the infamous fees-for-no-service scandals that engulfed the major institutions. Financial advisers have increased their trust score from 4.98 out of ten in 2020 to 5.3 in 2023, while banks have seen theirs go up from 4.85 to 5.39.

2) Against the background of rising interest rates, slowing economic activity and falling commodity prices, earnings growth for companies could slow markedly, though companies with defensive earnings could outperform those companies with earnings more closely linked with economic activity. Australia’s risk of an economic downturn jumped to the highest level since the pandemic, a Bloomberg survey showed this month, with the likelihood of a recession in the next 12 months climbing to 50 per cent, up from 35 per cent in May. Many economists still expect the Reserve Bank of Australia to raise interest rates again to try to curb inflation. Analysts say that very few sectors would be immune from a recession. However, companies with defensive earnings characteristics could be better positioned for any economic downturn.

3) Self-managed superannuation fund advisers are in high demand as members navigate the latest round of changes to fund rules, with the new $3M cap on concessionally taxed super set to affect one in three clients according to fresh data from research firm Investment Trends. The proposed cap, which would increase the headline tax rate to 30 per cent from 15 per cent for earnings on any part of an individual’s super balance that exceeds the $3 million threshold, is set to take effect on July 1, 2025. Despite being over two years down the track, the changes have already prompted 24 per cent of SMSF holders to actively initiate discussions with their advisers about it, Investment Trends reports. In contrast, only 2 per cent of SMSF clients have initiated discussions with their adviser about how to handle the scheduled indexation increase in the transfer balance cap from $1.7m to $1.9m, which is set for July 1, this year.

4) The threat of a cyber-attack has rattled many firms this year-both globally and here in Australia too. With an increasing number of users, devices and programs available across most corporations, combined with the increased deluge of data, much of which is sensitive or confidential, the importance of cybersecurity continues to grow. The growing volume and sophistication of cyber attackers and attack techniques compound the problem even further. In Australia, a major security breach occurred when FIIG Securities, which has 6,000 Australian investors and $5 billion under advice, confirmed on June 10, that they had been hacked, with detailed customer data stolen. In light of these developments corporates are scrambling to shore up their cybersecurity infrastructure, as hacking is likely to continue to be a major risk factor for organisations. It came as no surprise when the Melbourne-based cybersecurity small cap Tesserent (ASX: TNT), announced it is to be acquired by French multinational Thales, in a $176 million share scheme.

5) While the post-Covid recovery in emerging markets hasn’t been a bust, it hasn’t been the boom that many investors were hoping for. China’s re-opening has been “spotty” and left some investors disappointed. And while the on-again off-again US banking crisis doesn’t impact emerging markets, tough memories of 2008 have made investors unwilling to take on more risk. “I will say that China is what it is, but I’m surprised at the resilience we’re seeing in other parts of emerging markets,” says Derrick Irwin, portfolio manager for Allspring’s Intrinsic Emerging Markets Equity team. “Inflation continues to fall in a lot of emerging markets – Brazil, which we’ve been waiting and watching for some time, has now seen inflation come down pretty close to the target band for the central bank there to start cutting rates. India has recently had a pretty subdued inflation print. And in general we haven’t seen a lot of countries where inflation has been too sticky.”

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