Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
ASX shares update; QBEs culture crisis, RBA looking dovish
August gains lost in a day, QBEs culture crisis, RBA looking dovish, higher open ahead
With reporting season complete, markets are once again turning to economic data and vaccine hopes.
It wasn’t a great start to Spring, with the ASX 200 (ASX:XJO) falling 1.8% and giving back nearly all the gains achieved in August.
The tech sector was the biggest detractor, with Afterpay Ltd (ASX:APT) and Zip Co Ltd (ASX:Z1P) down 8% and 11% respectively following global giant PayPal Inc. (NASDAQ:PYPL) announcing it was entering the Buy Now Pay Later market.
Analysts are suggesting the entry could see margins hit as merchant fees reduce in light of more competition, yet with PayPal currently charging similar rates to APT, I’d suggest the market is big enough to share, at least for a few years.
The other laggard was QBE Insurance Group Ltd (ASX:QBE) which looks to be suffering a culture crisis of its own following the resignation of a second CEO under a cloud of behavioural complaints from staff; shares fell 6.5% for the day. This is one to avoid.
Cash rate on hold at 0.25%, cheap debt for the banks doubled, MMT ahead?
The Reserve Bank of Australia announced its latest interest rate decision, maintaining the near-zero cash rate for the foreseeable future but unexpectedly doubling the $100 billion Term Funding Facility, offering banks access to capital at a cost of just 0.25% per annum.
Most attention was paid to the Governor’s quote indicating that “The Board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery.”
This could mean any number of things, from negative interest rates to more active involvement in Government bond issues; whatever it means it was sufficient to lift the market off its lows and in my view is a positive for continued support of the economy.
Despite the negative outlook for those stuck in lockdown in Melbourne, the economy appears to be improving, with building approvals up 12% in July, far better than the forecasted 2%, some positive news ahead of an historically bad GDP result tomorrow.
Lendlease Ltd (ASX:LLC) rallied 2.2% on the back of the announcement after indicating that it would be ramping up construction in 2021 and beyond.
Zooming in, tech rally continues, can Trump still win?
It was a mixed night for overseas markets, with the US S&P 500 and Nasdaq both ended higher, 1.4% and 0.6%, respectively as the tech rally continues unabated. This time is was the relative newcomer Zoom Video Communications Inc. (NASDAQ: ZM), maker of the app that has become ubiquitous with the pandemic.
The company finished 40% (yes 40%!) higher after reporting sales of $663 million in the July quarter, up from $146 million in the prior year, and a profit of $186 million compared to expectations of just $134 million.
The company’s performance has been exceptional and continues to embarrass those suggesting that this is a tech bubble – with record amounts of cash on the sidelines, it is set to continue.
European markets were weaker following signs of deflation, with Euro Area prices falling 0.2% in the quarter. In the US, JP Morgan researchers have suggested that President Trump may still be capable of winning a second term despite poor polling, which they believe would be a positive for the economy.
Australian GDP results are due at 11.30 this morning.
