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14614B-0315jw BoM View magazine Edition 2-EBOOK VERSION_v1.pdf
A magazine for Bank of Melbourne Private | 02 Summer 2014
JEAN PAUL
GAULTIER
AT THE
NATIONAL
GALLERY OF
VICTORIA
14614B-0315jw BoM View magazine Edition 2-EBOOK VERSION_v1.pdf
Welcome
Contents
4
Cover Story
Jean Paul Gaultier
and the NGV
Jonathan Ayres
Head of Bank of Melbourne Private
W
elcome to the final issue
of View for 2014. If you
haven’t already seen enfant
terrible Jean Paul Gaultier’s
wondrous new exhibition at the National
Gallery of Victoria (NGV) I urge you to go
and see it. One of the best aspects of Jean
Paul Gaultier’s exhibition is that we have the
opportunity to get up close and personal to
all the incredible gowns on display.
The show is part of the gallery’s focus
on design-based exhibitions and it will be
fascinating to see what the NGV brings to
art lovers in 2015. I can highly recommend a
visit to the gallery this summer, especially on
those hot days when it can be a true refuge.
This issue, we also bring you a profile on
Lucy Feagins, who runs The Design Files.
The very popular art and design blog has
attracted a cult following since it was first
launched in 2008. Lucy is presently basking
in the success of her very popular event,
The Design Files Open House. The intriguing
project involved building a beautiful house
inside a Collingwood warehouse. Visitors
could buy anything and everything on
display and I understand many wanted to
take home entire rooms. Bank of Melbourne
is a proud supporter of this fabulous initiative,
part of our commitment to championing
local creative businesses.
bit more about why we take a thematic
approach to investing and some of the
themes we’re focusing on at the moment.
Our digital guru, Adam Farraway, also
talks us through how new technologies are
helping businesses become closer to their
customers. If you run a business, we hope
this piece will provide insights into how cloud
computing, social media and the proliferation
of smart devices can help you better engage
with your customer base.
Finally, we explore findings from the
latest VECCI survey. The research indicates
Victorian businesses are optimistic about the
near-term outlook, which bodes well for a
successful year in 2015.
I’m also pleased to report confidence
levels among high net worth individuals
remains in positive territory, according to the
latest Bank of Melbourne Private Investment
Sentiment Indicator. The strong property
market is the key reason why investors
maintain a positive outlook at the moment.
However when it comes to equities, Jason
Petras, one of BT Investment Management’s
Portfolio Managers, anticipates the volatility
that characterised markets in 2014 will
continue into next year.
We also get inside the mind of Bank
of Melbourne Private’s Chief Investment
Director, George Toubia, He explains why
clients are always at the centre of everything
we do. In this profile piece, you can find out a
8
As 2014 draws to an end I’d like to once
again thank you for your ongoing support
and hope you have a wonderful festive
season and prosperous new year. We look
forward to a continued partnership with you
in 2015.
We hope you enjoy this issue.
Jonathan Ayres
Head of Bank of Melbourne Private
Jonathan Ayres | LinkedIn
10
Profile
Beyond the
digital divide
The Design Files Open House
14
Confidence levels among wealthy
Australians improves
16
Iconic Peninsula offers unique
opportunities in prestige property
20
Equity market expectations: 2015
22
New dynamics in global markets
24
Victorian business remains optimistic
despite difficult trading conditions
View
A magazine for Bank of Melbourne clients
Bank of Melbourne
Level 8, 530 Collins Street
Melbourne VIC 3000
Contact us
Phone: 03 9274 4785
Web: bankofmelbourne.com.au/private
Summer 2014/15 | View | 3
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Cover Story
At 9am each morning, a timer activates a choir of virgins
in the National Gallery of Victoria’s The Fashion World of
Jean Paul Gaultier: From Sidewalk to Catwalk exhibition.
In the quiet gloom, 10 blankfaced mannequins in lush haute
couture gowns from Gaultier’s
archive are transformed by a
network of cunning overhead
projectors.
4 | View | Summer 2014/15
Full lips suddenly appear and
part over white teeth, doe-eyes
blink slowly open, shut, open,
lashes bat, brows rise.
And the virgins begin to sing.
All images from: The Fashion World of Jean Paul Gaultier: From the Sidewalk to the Catwalk The National Gallery of Victoria. Photos: Brooke Holm
JEAN PAUL
GAULTIER
and the
National Gallery
of Victoria
Summer 2014/15 | View | 5
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14614B-0315jw BoM View magazine Edition 2-EBOOK VERSION_v1.pdf
Jean Paul Gaultier and the National Gallery of Victoria
Cover Story
T
Watch the video
of Jean Paul Gaultier
and the National
Gallery of Victoria
here have been some wondrous
artworks installed in the NGV since it
was founded in 1861, the first and still
the largest public gallery in Australia.
But this temporary exhibition (until 8 February
2015) of French fashion legend Jean Paul
Gaultier’s iconoclastic oeuvre, is one of the most
intriguing and as likely to lure new audiences
as the recent, record-breaking Melbourne
Now notably did. More than 750,000 visitors
were clocked through the NGV’s doors for that
ambitious assembly of 175 works by more than
300 local artists, craftsmen, performers and
designers including fashion.
“Fashion is exciting because it is such an
accessible form of design,” says Tony Ellwood,
NGV director. He recently announced a rich
future program of future design-focused
exhibitions. “It is one that people automatically
relate to and understand and high-end
design (such as Gaultier’s), is something that
is otherworldly to many people; it sort of
transports them into having a great social and
intellectual experience.”
Paris-born Gaultier, fashion’s enfant terrible,
is also a costumier, performer, philosopher and,
above all, relentlessly joyful showman who
pokes fun at convention and has triggered
social revolutions, flipped rigid notions of sex
and gender identity, ethnicity and race, bodyshape and age, for three rollicking decades.
“There is beauty,” he says, “Everywhere.”
He embodies many of the reasons why
fashion exhibitions are increasingly popular,
luring millions of first-time visitors to art
galleries, such as the NGV,
around the world in recent
years. Key to fashion’s
intrigue is the visual record it
offers, of human expression
and social evolution, but
there is also a continuing,
robust dialogue firing about
its relevance as an artform.
Gaultier’s “virgin chorus”
of young pretties, for
example, with their heavy,
exquisitely detailed haute
couture gowns (several from
his Les Vierges collection of spring/summer
2007) would be regarded as every bit as rare,
6 | View | Summer 2014/15
lovely and rich with meaning, as Tiepolo’s lavish
Banquet of Cleopatra, or Poussin’s magnificent
Crossing of the Red Sea, both mounted upstairs
in the NGV’s permanent galleries. (NGV visits
are likely to be planned with an hour or two of
Gaultier, followed by an hour or two of 17thcentury Europeans factored in.)
Curator of Jean Paul Gaultier, Thierry MaximeLoriot, even suggests the rare opportunity to
get up close and personal with Gaultier’s haute
couture – fashion’s highest form, meticulously
regulated by the Chambre Syndicale de la
Haute Couture in Paris and accessible by only a
few thousand of the world’s wealthiest women
who can pay their often six-figure price tags –
can be akin to a religious experience.
“For some people, it is like they enter a
church,” he says. “They are quiet and they do
this …” (He reaches forward to touch a gown but
his fingers hover a couple of centimetres away,
then flick away). “This is the nice thing about
this exhibition; it is not closed, nothing is behind
glass or windows …”
Melbourne is the ninth city to host Jean Paul
Gaultier since it was conceived at the Montreal
Museum of Fine Arts in 2011. It continues to
Paris next year. Originally, Gaultier was sceptical
about his relevance in a high art context. “This
first idea was not good for me,” he recalls. “A
museum, an exhibition like this, is for dead
people, I think, but they convince me, so I want
it lively, not dead. I want it changing all the time,
and with movement, with mannequins to be
alive, like in my real shows …”
“Even if you’re a little unsure about whether
fashion design would appeal, the sheer force of
that name – Gaultier, the master and one of the
last independent couturiers in the world – helps to
attract people,” says Ellwood. “They’ll come in and
give it a go because they also trust the NGV brand
to bring interesting, innovative exhibitions to their
community.”
From Jean Paul Gaultier and other planned
exhibitions with a design focus, a spill of new interest
in the NGV’s much-loved permanent collection
and two locations, is virtually inevitable. The gallery
owns more than 70,000 works, carefully acquired
for more than 150 years, including a rich core of
significant Australian and iconic European art
valued in the region of $3.5 billion.
Australian works are shown in the Ian Potter
Centre at Federation Square, opened in 2003.
The international collection, including The Fashion
World of Jean Paul Gaultier-From Sidewalk to
Catwalk, is housed in the gallery’s imposingly
modern oblong designed by Sir Roy Grounds.
Since its opening in 1968, a tactile water-wall
set within a mouse-hole arch cut into the building’s
smooth bluestone façade, has lured the curious
into the gallery and, no doubt, triggered some love
affairs with art.
A choir of virgins in heart-stopping haute couture
might also do the same.
To find out more about the Jean Paul Gaultier:
From Sidewalk to Catwalk exhibition,
go to the National Gallery of Victoria website
http://www.ngv.vic.gov.au/
His chorus of animated virgins and other
life-like mannequins, a moving catwalk lined
with the same elegant gold chairs at his haute
couture shows, as well as a rich sprinkling of
large format photographs and audio and video
clips is the mesmerising result.
More than 1.3 million visitors have seen the
exhibition so far and, judging by the raptourous
reception given Gaultier, Loriot, and wig-maker
Odile Gilbert (responsible for, among other
marvels, multi-colored punk Mohawk humanhair wigs as wide as wagon wheels) at the
recent NGV launch, it’s highly likely that figure
will swell to over 2 million this summer.
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Profile
The Design Files
Open House –
a great, creative fit
Bank of Melbourne is a proud supporter of one of the most
exciting design events of the year.
L
ucy Feagins had an early-mover
advantage. When she started her
blog The Design Files back in 2008 it
was the early days of blogging. Fast
forward six years and it’s one of the most hotly
read design and art blogs in Australia, if not the
world, with 180,000 unique visitors and more
than 1,000,000 page impressions per month.
“When I started a lot of people didn’t even
know what a blog was. We were lucky and got
momentum early. But if you started a blog today
it would be hard to do the same thing,” she says.
Lucy established the blog as a side project
while working at her then day job as a film set
decorator. “I’ve always been passionate about
local designers and my job involved sourcing
furniture, lighting and other objects and put me
in touch with a lot of creative people, which all
fed into the blog,” she explains. “I didn’t plan
for it to be a business; initially the blog didn’t
produce an income because that wasn’t its
purpose.”
But The Design Files soon attracted a
following in the media and started gaining
momentum, which led to requests from
businesses to advertise on the site. The
enterprise now employs two staff and draws
on a large pool of freelance designers,
photographers and writers. “It now operates as
an online magazine. We generate revenue from
advertising and invest in content,” she says.
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But The Design Files is far from Lucy’s only
business baby. She also runs a series of events,
the most exciting of which is an annual project
called The Design Files Open House, which has
just been held in Melbourne for the fourth year
in a row. “The concept is to create the ultimate
Australian home,” Lucy says.
This year, she situated the home inside a
warehouse in Collingwood, building it from
scratch from within the site. It took six months
to develop the kitchen, living areas, bedroom,
kids’ space and internal courtyard that make
up the house.
“We designed it from the ground up, including
the flooring, choosing the paints and doing
the cabinetry. It was a massive undertaking,”
she says.
The home was open to the public, who
were able to buy everything in the space and
take their favourite items home immediately,
or have bulkier items shipped later. More than
70 local artists and designers contributed to the
event, and Bank of Melbourne was proud to be
a partner, holding a series of breakfasts inside
the space. “This was the first time we had a
major event partner,” Lucy says.
The Design Files’ connection with the Bank
of Melbourne was serendipitous. “One morning
I was driving through Carlton, where I often see
hot air balloons early in the morning,” says Lucy.
“That day I saw one really close to the road,
which had Bank of Melbourne branding. I took
a pic and posted it to Instagram and later that
week the marketing team got in touch. They
had been meaning to contact me for a while
because they are really great supporters of
creative small businesses. So that’s how the
relationship started, and I think it’s been a great
alignment for both of us.”
She says it’s been fantastic to work with the
bank’s “really creative” marketing team. “It’s great
to know I have their support if I have a great
idea. At the moment we’re working on video
content; the bank’s support helps us to do what
we do best.”
This is the first time Lucy has held the Open
House event in a purpose-built space. Previously,
she has rented a house, often accommodating
the family that usually lives there in a hotel for
the event and the period leading up to it. “We
transformed the homes and then put them back
together afterwards,” she explains.
More than 7,000 people attended this year’s
event, which goes from strength to strength
every time it’s run. “Every year we want to do
better than last year, which helps to motivate us
to do different things,” she says. We can’t wait to
see what Lucy has planned for 2015.
To see more details on the Open House
event or The Design Files blog, visit
http://thedesignfiles.net
Summer 2014/15 | View | 9
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Business Solutions
What are the four essential
ingredients of a marketleading digital customer
engagement strategy?
By Adam Farraway
Head of Digital, BT Financial Group
T
he advent of digital technologies
means the way you need to interact
with customers has completely
changed. The sales funnel is broken,
consumers are distracted and you only get
one chance to win them over.
But given the rise of cloud computing, data
analytics, social media and the proliferation
of mobile devices, it’s now much easier to get
close to your customers, understand their
preferences and give them what they want.
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Business Solutions
. . . often, you have
only one chance to
capture the interest
of your customers
Thanks to these four factors, smart businesses
are more easily finding new clients, reducing
their costs to service clients, deepening
relationships with them and increasing the
value of individual transactions. So how has this
happened?
It’s fair to say that without cloud computing,
none of this would have been possible. Cloud
means businesses no longer have to invest
in expensive hardware and software to store
business information. Now, it’s easy to outsource
this to expert providers, and enjoy the costreduction benefits that economies of scale
delivers.
Cloud means the massive amounts of data
businesses can access about their clients can
be collated and analysed, delivering valuable
insights businesses can use to more accurately
offer clients what they want.
Moreover, cloud means businesses of any
size are able to safely and securely store their
information, and have a large degree of control
over it, without having to invest in costly servers
and appoint staff to manage this function. Cloud
is really the infrastructure that supports the
three other elements of a great digital strategy:
social media, mobile devices and data analytics.
12 | View | Summer 2014/15
It’s hard to separate social media from mobile
devices: the two are intrinsically entwined given
we mostly access social media from smart
phones and tablets. Your customers need to be
able to access your business on social media,
through your Twitter feed, Facebook page, on
your website and mobile site, using the device of
their choice, wherever they are.
When they do this, they produce valuable
data about what they are looking for so that you
can hone your offer to them. It means you can
get a clear picture about the transactions they
have made, the links they have clicked and any
tools you have on your site they have used. You
can also see where clients tend to click off your
site, as well as where they spend the most time.
Importantly, once you have this knowledge
you can personalise your offer to individual
clients, based on their past browsing and buying
behaviour. Let’s say you have an online furniture
business and a potential client visits your site
to look for kids’ bedroom furniture. Because
you know what they are in the market for, next
time they come to your site you can serve up
an offer giving first-time clients a 10 per cent
deal on kids’ furniture, to encourage them to
buy from you. So just by using the analytics you
have available to you, you’re able to personalise
the experience for your client, and increase the
chance of making a sale.
But putting in place a digital strategy
doesn’t happen automatically. It’s important
to implement systems to collect and analyse
data on an ongoing basis. It’s essential to have
a robust online presence in social media as
well as a great website and mobile site that
really differentiates your business. You also
need a digital marketing strategy to leverage
your investment in digital assets.
This can be a challenge and often you have
only one chance to capture the interest of
your clients. They are usually just one click
away from leaving your site or deleting you
from their social media feed. But if you get
your digital engagement strategy right, you’ll
be able to build relevant, timely and attractive
offers that ensure you remain relevant with
your target audience.
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HNW
Wealthy Australians’
confidence eases after
a positive year.
The most recent Investor
Sentiment Indicator shows
wealthy investors are more
upbeat about the outlook for
the local economy, but their
confidence in Australian equities
has slipped and most maintain a
conservative attitude to risk.
S
entiment among high net worth
investors (HNWIs) eased in the final
quarter of 2014, although it remains
high by historical standards, the most
recent results of Bank of Melbourne Private’s
Investor Sentiment Indicator show. Overall
sentiment fell to +15.4 from the previous quarter’s
reading of +19.8, which was the second highest
level ever recorded in the research.
The result weakened due to waning confidence
in direct Australian equities with the local share
market falling through the quarter. Seven out of
ten HNWIs surveyed think residential property
will outperform Australian equities over the next
quarter, up from just over half in the prior survey.
Respondents had higher expectations for the
Australian economy with fewer anticipating a
slowdown over the next quarter compared with
the previous survey. One in four believe the
economy will speed up in the next three months,
up from 21.6 per cent in the third quarter. HNWIs
are also cautiously optimistic about business
conditions and their own household finances.
Despite improving perceptions of the economy,
risk appetite among HNWIs is continuing to drop
amid concerns about conflicts in the Middle
East, the Ukraine and Russia, along with ongoing
challenges to European economies.
A larger proportion – almost 30 per cent
– consider themselves to be conservative
investors, up from 24.8 per cent the third quarter.
The proportion describing themselves as
moderate investors also rose to 45.5 per cent
from 40.8 per cent in the previous survey.
14 | View | Summer 2014/15
HNWIs said they were most likely to invest in:
AUSTRALIAN
EQUITIES
CASH
INTERNATIONAL
EQUITIES
Read the entire report on the BoMP website: http://privatebank.bankofmelbourne.com.au/
Goals and intentions
The most common investment goal for
HNWIs is to generate income, although a
growing proportion said they were looking for
steady capital growth, with 31.7 per cent saying
that was important, up from 26.4 per cent in the
third quarter.
Investment intentions among HNWIs fell back
into negative territory in the most recent survey,
with the component of the index that measures
future investment plans reading -1.7. This is a
turnaround from a stronger result of 4.2 in the
third quarter and breaks a trend of improvement
through the year.
HNWIs are increasingly looking for low risk
investments. Fewer than one in four were willing
to take on more risk to pursue better returns,
down from 28.8 per cent in the third quarter.
More said they had withdrawn money from
existing investments and fewer had topped
them up compared with the previous quarter.
per cent saying this would be their most likely
investment over the next quarter, while 16.7 per
cent said their most likely investment would be
in international equities.
For future investments, one in four said they
would pick direct Australian shares. This was still
the most popular choice, despite being down
from 36 per cent in the previous survey.
Cash and residential property were equal
second most popular for future investment,
with 16.8 per cent saying these would be their
most likely investment choices in the longer
term. This represents a drop in popularity for
cash, which was the future investment of choice
for 24 per cent of HNWIs in the prior survey,
and a gain for residential property which was
previously favoured by 11.2 per cent. These shift
are likely due to continuing low interest rates
coupled with steady gains in residential property
markets.
Satisfaction
However, HNWIs are still investing. Three in ten
bought new investments in the fourth quarter,
up from 22.4 per cent in the previous survey.
And 31.7 per cent said they were either likely or
somewhat likely to buy new investments in the
next three months, up from 28.8 per cent in the
third quarter.
Most HNWIs are satisfied with their investments.
Satisfaction with residential property was the
highest, although it fell to 78.6 per cent from 90.2
per cent in the previous quarter. This was still a
better result than in the second quarter survey
and likely reflects moderating property markets
towards the end of the year.
Over the next three months, HNWIs are most
likely to invest in Australian equities, with 28.5 per
cent nominating that asset class as their most
likely choice. This was down from the previous
survey, reflecting a less bullish outlook on
Australian equities. Cash ranked second with 24.4
In summary, investor sentiment receded in the
fourth quarter following a year of improvement.
Wealthy investors are focused on opportunities
that offer acceptable income levels and growth
rates but they retain a conservative to moderate
risk profile.
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Domain
The Australian property
market has reactivated
over the past two years,
driven by historically low
interest rates.
By Dr Andrew Wilson
Dr Andrew Wilson is Domain Group Senior Economist
Twitter@DocAndrewWilson
The Iconic
Peninsula
Unique
opportunities in
prestige property
T
he sharp improvement in affordability
has released pent-up demand at various
levels in most capital cities and property
prices have risen at the fastest rate in
four years, with the Sydney market experiencing a
decade-high boom in prices growth.
The budget and middle markets have been
the strongholds of buyer activity with investors
particularly active, chasing the re-emergence
of capital growth most notably in Sydney.
Changeover buyers have also been active in
mid-price ranges as the irresistible force of low
mortgage rates and value opportunities from
previously subdued market conditions have
created significant momentum.
Although housing markets have generally
reactivated over the past two years, the rate
of prices growth has reflected local market
conditions with some markets clearly performing
better than others. Sub-market performances have
also been mixed and the clear underperformer
has been prestige property at the top end of the
market.
Despite reasonable economic performance
since the global financial crisis (GFC), the wealth
effect has generally been missing, with highend discretionary purchases a casualty of this
16 | View | Summer 2014/15
conservative environment. A key signal indicating
the general lack of drive in prestige property
activity is the performance of the local stock
market. Australia’s stock market remains around
15 per cent below its previous peak recorded in
2007, highlighting strong economic growth during
that period. Similarly, overall prices in the prestige
housing market remain below the previous peak
levels of four to seven years ago.
Given the generally subdued nature of prestige
property, value opportunities remain in what are
definitively iconic properties in prime locations.
Melbourne’s Mornington Peninsula has traditionally
been the holiday playground for the local metropolis
and provides a range of property types and values.
Although the spread of Melbourne suburbia has
now reached the Peninsula and it can now be
considered part of the general metropolitan area,
the southern coastal and inland rural parts of the
Peninsula maintain their cache as prestige holidayhome, weekender or retirement locations.
Portsea, unsurprisingly, maintains its mantle as
Melbourne’s ultra-prestige, local, holiday destination,
featuring abundant luxury properties within its
environs. Sorrento also provides numerous luxury
holiday homes and weekenders, taking advantage
of its bayside lifestyle and proximity to the city.
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Domain
Other niche prestige locations have emerged
on the Peninsula over recent years with luxury
home development adjacent to the coastline.
With a flurry of ultra-luxury properties having
been constructed in the past decade, St Andrews
is a small prestige pocket located between Rye
and Sorrento.
Seaside prestige properties are not the only
iconic locations for luxury real estate on the
Peninsula. A number of substantial homes have
been built within the semi-rural environments of
Red Hill, Bittern, Flinders and Balnarring. Small
wineries and hobby farms are located within
these picturesque districts, enhancing the
European-style, rural atmosphere.
Luxury seaside and adjacent rural property
pockets are also to be found on the southern
Peninsula at the small coastal hamlets of Point
Leo and Somers.
Despite a recent increase in buyer activity,
prices growth in a number of these areas has
been subdued.
Over the six months ending September 2014,
the top Peninsula suburbs by median house
price were led, unsurprisingly, by Portsea at
$1,300,000 from 25 sales. Next highest was
Flinders at $830,000 from 15 sales, Sorrento
at $790,000 from 55 sales, followed by Mount
Eliza at $770,000 from 185 sales and Fingal at
$730,000 from 18 sales.
Longer-term prices growth in Portsea, however,
remains subdued with the median house price
still 10.3 per cent below that recorded in 2008.
Similarly, the median house price for Sorrento is
12.7 per cent below the level of three years ago
and Finders’ house prices are down by 16.8 per
cent over the same period.
For more information please contact
your Private Banker, or contact us.
For buyers of luxury properties
in iconic locations, the postGFC, relatively subdued
prestige property market on the
Mornington Peninsula continues
to offer unique opportunities.
Top Peninsula
suburbs by median
house price:
$ 1.3 million
PORTSEA
$ 830 K
FLINDERS
$ 790 K
SORRENTO
$ 770 K
MOUNT ELIZA
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Equities
Equity market expectations: 2015
Investors are bracing
for another year of ups
and downs in the local
bourse. Here, we explore
some of the factors
that are likely to move
markets next year.
T
he equity market was characterised
by only brief spikes in volatility this
year but more can be expected in
2015. As we saw in 2014, a dropping
dollar plus headwinds from international
markets are likely to impact the performance of
equities markets in the year ahead. Jason Petras,
Portfolio Manager, BT Investment Management,
takes us through some of the themes that are
likely to influence the direction of the share
market in the coming 12 months.
Jason explains volatility in markets is likely to
continue for some time. “I think we’re moving
into a higher volatility market,” he says. But that’s
not necessarily a bad thing for shareholders, as
this can produce opportunities to both buy and
sell shares.
In terms of the domestic economy, he says one
of the factors that might influence the market in
2015 is the emerging debate about a potential
rise in the GST.
“Any change to the GST should be factored
into retail spending,” he says. This means ASXlisted department stores, retailers and shopping
centres could be affected.
Another dynamic to watch will be the outcome
of the Financial Services Inquiry. While it’s too
early to say what this will mean for banks and
financial institutions, the findings will certainly
have a bearing on the performance of the major
banks’ shares.
Consensus in markets is that the value of the
Australian dollar still has further to fall, especially
if the cash rate remains on hold. “It’s important
investors factor in the direction of the currency
when they’re making decisions about their
portfolio,” says Jason.
Offshore, the performance of the Chinese
economy will have a significant bearing on
the Australian share market, especially in the
resources, retail and property spheres.
China is facing headwinds in the residential
property sector, which in turn puts pressure on
its financial markets. This is because as property
prices come down, it becomes more difficult to
refinance properties.
‘The effect will be to drive Chinese GDP down
and cause a general slowdown. This translates
to reduced demand for our resources, which
we’re seeing in the depressed iron ore price,
which we anticipate will stay at lower levels,”
Jason says.
But although resources shares had a tough
2014, thanks to lower commodity prices and
fears of a China slowdown, there could be good
news for companies in this sector next year.
“Resources stocks have been beaten down, but
if the market feels they have reached a floor, we
could see a turnaround in shares like Rio Tinto
and “Fortescue Metals Group,” says Jason.
In Asia, Japan is Australia’s second largest
trading partner behind China, and its aggressive
monetary policy, as well as a new program of
buying overseas equities, should prove positive
for the Australian share market. Expect to see
strong inflows into the market from Japanese
investors next year.
In the US, the tapering of unconventional
monetary policies and a potential lift in official
interest rates, as well as the greenback’s
appreciation against the Australian dollar, are
some of the factors that will also influence
Australian equities.
Given so many different influences on local
and global share markets, it’s no wonder
volatility will likely remain a feature of markets
for some time yet.
For more information please contact
your Private Banker, or contact us.
20 | View | Summer 2014/15
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Profile
Investment Perspective
New dynamics
in global markets
The US:
The new manufacturing
superpower
There has been a paradigm shift in the US that has seen it become a low-cost
manufacturing powerhouse. While it has always been known as a net global
consumer, it has now become a major competitor of the large manufacturing
nations. This has been due to a huge focus on fostering innovation, flexible
labour rules, access to relatively cheap labour and cheap energy input costs.
All these facttors combined have helped to support the resurgence of the US
as a global competitor and hence a favoured destination for regional headquarters
or production plants of global corporations.
Over the past 12 months,
there’s been a notable shift in
clients’ attitudes to investing.
In particular, many have
turned their attentions towards
opportunities in overseas
markets. At the same time, as
yields have started to decrease
clients have changed their
view on opportunities in credit
markets. It’s worth exploring the
drivers behind this swing
in investor sentiment.
By George Toubia
22 | View | Summer
WINTER/SPRING
2014/15 2014
T
he international and domestic
investment landscape has begun
to evolve over the past 12 months
as a result of new dynamics in
global markets. In Australia, a wide range of
investors have formed a collective view that the
value of the Australian dollar will continue to
weaken. As a result, clients are becoming more
focused on the broader universe of investment
opportunities beyond our shores. Specifically,
they are turning their attentions to the Asian and
US markets.
Importantly, we believe that significant
divergence has emerged between the major
global economies and this will persist for a
considerable period of time, shaping risk and
opportunity. Between 2009 and 2013 there
was an unusual synchronicity in the monetary
policies of the major economies, including the
US, UK, Japan and Europe, with these markets
embarking on monetary policy stimulus
programs. But over the next few years there
will be a divergence in policies from the major
central banks.
In tandem, there has been a growing realisation
that yields in overall credit markets are declining
and hence there’s an appreciation that it has
become more difficult to acquire investments at
sensible prices or yields with a commensurate
reward for risk, especially those in the unlisted
real estate and wholesale credit markets.
This makes sense given an improvement in
economic conditions in the US and UK, which
have ended or reduced their stimulus programs.
But in Europe and Japan, central banks look
likely to continue quantitative easing programs.
Global markets are adjusting to this new
dynamic, and we are witnessing an unwinding
of carry-based investments. In the years
between 2009 and 2013, as a result of interest
rates being close to zero, investors could borrow
money at very low rates, and then acquire
assets delivering return potential of close to
double-digit per cent. As some central banks
end their monetary stimulus, there will be less
opportunity for investors to take advantage of
carry-based investments of this nature, leading
to a withdrawal of liquidity from specific markets.
But there’s also an appreciation that investments
in this category come with a higher degree of
volatility. So investors are tending to acquire
a small holding to test the opportunity
and increase their exposure once they are
comfortable with its volatility characteristics.
The reason the US and UK are unwinding their
aggressive monetary policy stance is because
their economies are healing. This we expect will
also be reflected in an improvement in the value
of their currencies over time, at the expense
of the value of the Japanese yen and the euro.
More buoyant conditions in these markets are
piquing investors’ interest, who are now looking
for exposure to growth opportunities outside
Australia.
Investors are also appreciating that there are
several different markets in Asia, all with their
own characteristics. For instance, Japan and
South Korea have a high level of exports into
China, whereas markets such as the Philippines
and Thailand are more domestically driven.
Investors are taking account of these themes
when making their decisions.
This has also prompted renewed interest
in Asian assets, but clients are approaching
investments in these markets in an extremely
risk-considered way. For instance, they may
wish to gain exposure to the burgeoning small
business sector in many Asian markets.
There is also a growing bias among investors
away from sectors that are impacted by macroeconomic trends in favour of sectors that
are driven by consumer demand and policy
initiatives. For instance the financial sector is
influenced by macro trends such as changes
in interest rates, while the resources sector is
George Toubia
Chief Investment Director
Bank of Melbourne Private
subject to fluctuations in commodity prices, also
a macro trend. Technology and healthcare are
sectors that are driven by consumer demand.
Increasingly, local investors are looking at
opportunities in these areas in global markets,
where there is a larger pool of assets and
opportunities from which to choose.
Finally, we are seeing investors search markets
for opportunities that deliver global resilience.
By this, we mean businesses that can survive in
a global economy that is barely growing. Assets
that fit this category tend to be productive
despite the low-growth outlook, enabling them
to defend their bottom line and deliver profit
growth.
Over the past year, we have seen a marked
appreciation of these trends among clients, and
we expect this will continue in 2015.
If you are interested in finding out more,
please speak to your Private Banker,
or contact us.
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Business confidence
Victorian business
remains optimistic
despite difficult
trading conditions
Despite a tough past 12 months, Victorian businesses are
looking to healthier sales and profits heading into 2015.
Steven Wojtkiw
T
aking the pulse of over 400 businesses
each quarter, the latest VECCI survey
of business trends and prospects
shows Victorian businesses are the
most optimistic they have been all year with
regard to the near-term outlook for general
business conditions, exports, sales and profits.
This is encouraging given the competitive
trading conditions many businesses have
reported over the past 12 months.
Steven Wojtkiw
Chief Economist
VECCI
Results from the September quarter survey
were no exception. The majority of surveyed
businesses reported further rises in wages and
other labour costs on top of those reported in
the previous June quarter survey.
Lacklustre export activity and subdued profits
also characterised trading conditions over the
past three months, with regional businesses
experiencing these pressures more acutely.
24 | View | Summer 2014/15
Despite the challenging business environment,
business sentiment around prospects for the
Australian economy over the next 12 months
improved by four percentage points during the
September quarter. The Victorian economic
outlook also remains positive.
The state-wide survey covers seven major
industry sectors and found that industries
focusing on service-based activities performed
relatively well during the September quarter.
Compared with the all industries average,
companies operating in the finance, property,
business services, education, health and
community services sectors reported healthy
trends in general business conditions,
employment and exports.
These results in part reflect the influence
of the falling Australian dollar and the efforts of
many individual businesses to proactively seek
out new opportunities in offshore markets.
Special questions included in the September
quarter survey examined some of the key
drivers of business decision-making, including
the influence of the state’s payroll tax system.
The survey found that one in three surveyed
firms would consider hiring more staff if the
Victorian payroll tax threshold were increased
from its current level of $550,000 to $850,000.
Of these businesses, over 26 per cent were
manufacturers and over half were small
businesses employing less than 20 people.
In Victoria, payroll tax
reform would represent
a timely and welcome
step in this direction.
These insights are important. With recent
Australian Bureau of Statistics data showing
Victoria’s unemployment rate to be higher
than the national average, VECCI is urging
policymakers to do what they can to create
an incentive for employers to expand their
businesses and create more jobs.
To access a full copy of VECCI’s survey
of Business treads and prospects, visit:
http://www.vecci.org.au
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Disclaimer:
The views expressed in this publication are those of the authors alone. They should not be otherwise attributed.
This publication has been compiled by Bank of Melbourne. Bank of Melbourne Private provides specialised services to customers of Bank of Melbourne. Bank of Melbourne – A Division of Westpac Banking
Corporation ABN 33 007 457 141 AFSL and ACL 233714.
The information and any advice in this publication is general in nature and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness
having regard to these factors before acting on it.
It is important that your personal circumstances are taken into account before making any financial decision and as such, you should seek detailed and specific advice from a suitably qualified adviser before
acting on any information or advice in this publication. The information contained herein does not constitute an offer to acquire a financial product. Your individual situation may differ and you should seek
independent professional tax advice in relation to your circumstances.
Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such.
Any taxation position described in this publication is general and incidental to the financial advice. You should consult a registered tax agent for specific tax advice on your circumstances.
While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law:
(a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) neither Bank of Melbourne nor any member
of the Westpac group of companies are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice.
Any outlooks given in this publication may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. Past performance is not a reliable indicator of future
performance.
This document has been prepared for use only by advisers and clients of Bank of Melbourne Private. While the information contained in this document has been prepared with all reasonable care no
responsibility or liability is accepted for any errors or omissions or misstatement however caused. All forecasts and estimates are based on certain assumptions which may change. If those assumptions change,
our forecasts and estimates may also change. 14614-1014jp