Future Returns: Ignoring Market Noise for the Long-Term
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,599,192 (-0.51%)       Melbourne $986,501 (-0.24%)       Brisbane $938,846 (+0.04%)       Adelaide $864,470 (+0.79%)       Perth $822,991 (-0.13%)       Hobart $755,620 (-0.26%)       Darwin $665,693 (-0.13%)       Canberra $994,740 (+0.67%)       National $1,027,820 (-0.13%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $746,448 (+0.19%)       Melbourne $495,247 (+0.53%)       Brisbane $534,081 (+1.16%)       Adelaide $409,697 (-2.19%)       Perth $437,258 (+0.97%)       Hobart $531,961 (+0.68%)       Darwin $367,399 (0%)       Canberra $499,766 (0%)       National $525,746 (+0.31%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,586 (+169)       Melbourne 15,093 (+456)       Brisbane 7,795 (+246)       Adelaide 2,488 (+77)       Perth 6,274 (+65)       Hobart 1,315 (+13)       Darwin 255 (+4)       Canberra 1,037 (+17)       National 44,843 (+1,047)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,675 (+47)       Melbourne 7,961 (+171)       Brisbane 1,636 (+24)       Adelaide 462 (+20)       Perth 1,749 (+2)       Hobart 206 (+4)       Darwin 384 (+2)       Canberra 914 (+19)       National 21,987 (+289)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $770 (-$10)       Melbourne $590 (-$5)       Brisbane $620 ($0)       Adelaide $595 (-$5)       Perth $650 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $700 ($0)       National $654 (-$3)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $730 (+$10)       Melbourne $580 ($0)       Brisbane $620 ($0)       Adelaide $470 ($0)       Perth $600 ($0)       Hobart $460 (-$10)       Darwin $550 ($0)       Canberra $560 (-$5)       National $583 (+$1)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,253 (-65)       Melbourne 5,429 (+1)       Brisbane 3,933 (-4)       Adelaide 1,178 (+17)       Perth 1,685 ($0)       Hobart 393 (+25)       Darwin 144 (+6)       Canberra 575 (-22)       National 18,590 (-42)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 6,894 (-176)       Melbourne 4,572 (-79)       Brisbane 1,991 (+1)       Adelaide 377 (+6)       Perth 590 (+3)       Hobart 152 (+6)       Darwin 266 (+10)       Canberra 525 (+8)       National 15,367 (-221)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.50% (↓)       Melbourne 3.11% (↓)       Brisbane 3.43% (↓)       Adelaide 3.58% (↓)     Perth 4.11% (↑)      Hobart 3.78% (↑)      Darwin 5.47% (↑)        Canberra 3.66% (↓)       National 3.31% (↓)            UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.09% (↑)        Melbourne 6.09% (↓)       Brisbane 6.04% (↓)     Adelaide 5.97% (↑)        Perth 7.14% (↓)       Hobart 4.50% (↓)       Darwin 7.78% (↓)       Canberra 5.83% (↓)       National 5.76% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.7% (↑)      Melbourne 0.8% (↑)      Brisbane 0.4% (↑)      Adelaide 0.4% (↑)      Perth 1.2% (↑)      Hobart 0.6% (↑)      Darwin 1.1% (↑)      Canberra 0.7% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.4% (↑)      Brisbane 0.7% (↑)      Adelaide 0.3% (↑)      Perth 0.4% (↑)      Hobart 1.5% (↑)      Darwin 0.8% (↑)      Canberra 1.3% (↑)        National 0.9% (↓)            AVERAGE DAYS TO SELL HOUSES AND TREND         Sydney 28.7 (↓)       Melbourne 30.7 (↓)       Brisbane 31.0 (↓)       Adelaide 25.4 (↓)       Perth 34.0 (↓)       Hobart 34.8 (↓)       Darwin 35.1 (↓)       Canberra 28.5 (↓)       National 31.0 (↓)            AVERAGE DAYS TO SELL UNITS AND TREND         Sydney 25.8 (↓)       Melbourne 30.2 (↓)       Brisbane 27.6 (↓)       Adelaide 21.8 (↓)       Perth 37.8 (↓)       Hobart 25.2 (↓)       Darwin 24.8 (↓)       Canberra 41.1 (↓)       National 29.3 (↓)           
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Future Returns: Ignoring Market Noise for the Long-Term

When it comes to volatility in the stock market, long-term investors are advised to ignore the drama.

By Abby Schultz
Wed, Sep 29, 2021 11:51amGrey Clock 5 min

Simply, short-term market reactions—justified or not—are just that, short-term. As Deepak Puri, Deutsche Wealth Management’s chief investment officer for the Americas notes, many of the issues causing the market’s recent swings—from the Federal Reserve’s decision to scale back economic stimulus, to concerns over whether Congress will lift the debt ceiling, to worries over China’s regulatory crackdown on a range of companies—are finite, and unlikely to have a long-term effect on the outlook for stocks.

“A lot of these issues we are grappling with have a finite shelf life, and if you look past that, the path of least resistance for the market is still on the upside,” Puri says. A key reason? Negative real interest rates—that is, rates adjusted for inflation— “create a favourable backdrop to own equities,” he says.

While the yield on the U.S. 10-year Treasury note has risen 17 basis points in recent days to 1.482% as of Monday’s close, rates are still relatively low, and the stock market—although expensive—still presents better risk-return characteristics than other sectors, such as Treasuries or investment-grade corporate bonds, Puri says.

“To find a better alternative for equity markets is pretty difficult at this point,” he says.

Penta recently spoke with Puri about where long-term opportunities lie, and where investors should look for value within stocks.

‘Structural Forces’ Continue to Support Stocks

The reason equity markets continue to be worth investing in despite already considerable growth is what Puri refers to as the positive, long-term structural forces “which have more sustenance” than finite concerns, such as the debt travails of China Evergrande Group, a large property developer.

Concerns over the implications of Evergrande’s inability to handle its debt burden contributed to a more than 600-point fall in the Dow Jones Industrial Average on Monday, Sept. 20—a drop that was erased by Friday, although on Tuesday, stocks were nosediving again as the 10-year yield continued to rise.

The substantive, structural forces Puri was referring to include the favourable macroeconomic environment created by low and even negative interest rates. Low rates mean investors should be much more comfortable owning stocks, he says.

As Puri explains, if investors worried about pricey stocks were to put all their money in cash and Treasury bills paying an interest rate of about 0.05%, it would take 1,000 years or more to double their money. By contrast, it would take seven-and-a-half years for investors to double their money in stocks, given equity markets historically have risen 10% a year. Even a more conservative estimate of a 5% annual rise in stock market returns would lead investors to double their money in 14-and-a-half years.

“Compare 14-and-a-half years versus a millenia if you are sitting in cash,” Puri says. “The alternatives to really challenge high-quality blue chip equities are limited at this point.”

Another structural boost comes from governments in both developed and emerging markets, which have stepped in with spending to counter the economic blows of the pandemic. Puri believes these actions point to a longer-term trend of increased spending by governments as a percentage of GDP. In the U.S., the spending began with stimulus to blunt the effects of the pandemic, and it continues with expected spending on infrastructure—from roads and bridges, to green technologies and “human infrastructure” such as spending on child care and education.

“That’s a structural shift that’s taking place that creates a favourable outlook for companies sensitive to that spending,” he says.

And, Puri notes, corporate earnings continue to grow at double-digit levels. Even though earnings growth is expected to moderate, and the stock market could swing lower should earnings growth dip, the overall outlook for earnings, and the ability of companies to pass on higher costs, remains strong.

Of course, these forces don’t mean equity markets will continue to go up in the short-term, as Tuesday’s market action shows. Bond yields are rising, the coronavirus pandemic remains a factor and could still derail growth, and the inability of Congress to address the debt ceiling could be crippling as well.

“Any sort of disappointment [about] liquidity, better economic growth, or a Covid resurgence could derail that linear trajectory we’ve been seeing in the stock market,” Puri says.

Where to Find Value

Puri says he often advises investors to look at what they own. Many don’t realize how much exposure they have to big technology names including Amazon or Alphabet, which dominate sectors such as consumer discretionary companies or communication services, for example.

Although the economy’s reopening has been delayed by the considerable setbacks caused by the Delta variant of Covid-19, Deutsche Bank expects the reopening will accelerate as vaccination rates rise, and that cyclical businesses, including banks and consumer discretionary companies, will benefit.

If investors are worried about inflation, Puri says they could consider investing in Treasury Inflation Protection Securities—bonds that adjust the principal payment according to inflation rates—or in bank loans, which, because of their short-term nature (generally one-year or less) have little exposure to interest-rate risk and can deliver slightly higher returns than Treasuries.

A Different Approach to Bonds

Typically, bonds serve two purposes in a diversified investment portfolio: they provide a hedge when stock markets slide and a return from the bond’s appreciation and coupon. In the past, the same security provided both, but “no longer is that possible,” Puri says.

Investors can own bonds for hedging—without expecting much in the way of returns—or they can own bonds that generate a yield (such as emerging-market bonds or high-yield corporate bonds), although the latter will behave more like risky assets, including stocks, than as a hedge.

“For most individual investors, you should have both,” Puri says. “ A fixed-income component purely for hedging—for when things don’t go well, volatility spikes, and equity markets are going down—and another part that gives you income.”

Stay Invested in China

China’s regulatory reining in of Alibaba Group Holding Ltd., the ride-hailing company Didi Global, tutoring services such as New Oriental Education & Technology Group, and debt-laden property developers such as Evergrande, raises concerns about investing in China, but Puri doesn’t advocate investors shun Chinese stocks.

For the near term, Deutsche Bank’s view is that for China specifically, and Asia in general, “it’s too late to sell, but maybe too early to buy,” considering the potential for further volatility.

Longer term, although Chinese growth prospects are down slightly, it’s important for investors with return on their investments as a primary motive to “keep China in your portfolio,” he says.

Many large Chinese companies “are big and profitable in their own regard, and are market leaders,” Puri says. “For a global investor, you need to keep your eyes open. If you are looking for return on your investment as your primary motive [for investing], keeping political and ideological views aside, then keep China in your portfolio.”

Also, the regulatory crackdown has a lot to do with China wanting more visibility into how companies do business, its desire to curtail monopolistic tendencies, and to promote Chinese family values. While the next few months could still be volatile, Deutsche Bank expects the upcoming reelection of China President Xi Jinping next year will create a more favourable macroeconomic backdrop.

Still, he notes, the country, despite its growth, is considered an emerging market. “This is a stark reminder that there are risks that are non-security specific related in these markets,” Puri says.



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Why Prices of the World’s Most Expensive Handbags Keep Rising

Designers are charging more for their most recognisable bags to maintain the appearance of exclusivity as the industry balloons

By CAROL RYAN
Tue, Mar 5, 2024 3 min

The price of a basic Hermès Birkin handbag has jumped $1,000. This first-world problem for fashionistas is a sign that luxury brands are playing harder to get with their most sought-after products.

Hermès recently raised the cost of a basic Birkin 25-centimeter handbag in its U.S. stores by 10% to $11,400 before sales tax, according to data from luxury handbag forum PurseBop. Rarer Birkins made with exotic skins such as crocodile have jumped more than 20%. The Paris brand says it only increases prices to offset higher manufacturing costs, but this year’s increase is its largest in at least a decade.

The brand may feel under pressure to defend its reputation as the maker of the world’s most expensive handbags. The “Birkin premium”—the price difference between the Hermès bag and its closest competitor , the Chanel Classic Flap in medium—shrank from 70% in 2019 to 2% last year, according to PurseBop founder Monika Arora. Privately owned Chanel has jacked up the price of its most popular handbag by 75% since before the pandemic.

Eye-watering price increases on luxury brands’ benchmark products are a wider trend. Prada ’s Galleria bag will set shoppers back a cool $4,600—85% more than in 2019, according to the Wayback Machine internet archive. Christian Dior ’s Lady Dior bag and the Louis Vuitton Neverfull are both 45% more expensive, PurseBop data show.

With the U.S. consumer-price index up a fifth since 2019, luxury brands do need to offset higher wage and materials costs. But the inflation-beating increases are also a way to manage the challenge presented by their own success: how to maintain an aura of exclusivity at the same time as strong sales.

Luxury brands have grown enormously in recent years, helped by the Covid-19 lockdowns, when consumers had fewer outlets for spending. LVMH ’s fashion and leather goods division alone has almost doubled in size since 2019, with €42.2 billion in sales last year, equivalent to $45.8 billion at current exchange rates. Gucci, Chanel and Hermès all make more than $10 billion in sales a year. One way to avoid overexposure is to sell fewer items at much higher prices.

Many aspirational shoppers can no longer afford the handbags, but luxury brands can’t risk alienating them altogether. This may explain why labels such as Hermès and Prada have launched makeup lines and Gucci’s owner Kering is pushing deeper into eyewear. These cheaper categories can be a kind of consolation prize. They can also be sold in the tens of millions without saturating the market.

“Cosmetics are invisible—unless you catch someone applying lipstick and see the logo, you can’t tell the brand,” says Luca Solca, luxury analyst at Bernstein.

Most of the luxury industry’s growth in 2024 will come from price increases. Sales are expected to rise by 7% this year, according to Bernstein estimates, even as brands only sell 1% to 2% more stuff.

Limiting volume growth this way only works if a brand is so popular that shoppers won’t balk at climbing prices and defect to another label. Some companies may have pushed prices beyond what consumers think they are worth. Sales of Prada’s handbags rose a meagre 1% in its last quarter and the group’s cheaper sister label Miu Miu is growing faster.

Ramping up prices can invite unflattering comparisons. At more than $2,000, Burberry ’s small Lola bag is around 40% more expensive today than it was a few years ago. Luxury shoppers may decide that tried and tested styles such as Louis Vuitton’s Neverfull bag, which is now a little cheaper than the Burberry bag, are a better buy—especially as Louis Vuitton bags hold their value better in the resale market.

Aggressive price increases can also drive shoppers to secondhand websites. If a barely used Prada Galleria bag in excellent condition can be picked up for $1,500 on luxury resale website The Real Real, it is less appealing to pay three times that amount for the bag brand new.

The strategy won’t help everyone, but for the best luxury brands, stretching the price spectrum can keep the risks of growth in check.

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