How Sensitive Are Stocks To Interest Rates? Time to Find Out
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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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How Sensitive Are Stocks To Interest Rates? Time to Find Out

As central banks start lifting borrowing costs from near zero, profitless startups are certain to suffer.

By Jon Sindreu
Mon, Mar 21, 2022 10:25amGrey Clock 3 min

There is a new urgency to the old question of how much credit falling interest rates should get for your stock portfolio’s strong performance.

The Federal Reserve and Bank of England have raised borrowing costs over the past week, confirming the end of near-zero rates and, analysts fear, of a decadeslong boost to stock valuations.

Higher share prices relative to company earnings explain half the returns of the S&P 500 over 10 years. That proportion rises to 60% for the technology-heavy Nasdaq as Google parent Alphabet Inc., Meta Platforms Inc. and Amazon.com have left “old economy” banks and utilities in the dust.

The raft of profitless tech-focused startups that hit the market last year, such as electric-vehicle maker Rivian Automotive Inc., fintech lender SoFi Technologies Inc. and various air-taxi ventures, seem particularly exposed to the turning tables. Otherwise, though, investors need to do some homework before simply rotating back to old-economy sectors.

A bond with a 2% coupon becomes less attractive when the return investors get by leaving the money in the bank rises from 0% to 1%. And its resale value will fall a lot more if it matures in 10 years rather than in two, because investors are locked in for a decade of disappointing returns. In financial jargon, it has higher “duration,” which is both a measure of sensitivity to rates and the weighted average time until all the cash flows are paid.

What about stocks? While they offer much more legroom to speculate because payments aren’t fixed, their value is—usually—still tied to expectations of making a profit. Mature businesses with predictable dividend payments can be seen as having low duration, whereas growth-led firms have more of their value tied to earnings in the distant future. Startups have extra-long duration: They are akin to buying a lottery ticket with a payout in 10 years’ time.

Most stocks, however, fall somewhere in between, which requires going beyond intuition or sector correlations with bond yields.

In a 2004 paper, University of Michigan researchers Patricia M. Dechow, Richard G. Sloan and Mark T. Soliman popularised a way to estimate a company’s “implied equity duration” by predicting future cash flows based on the growth of sales, earnings and book value. Applying their math to S&P 500, Euro Stoxx 50 and FTSE 100 stocks puts the duration of blue-chip stocks at around 20 years. As expected, the consumer services, healthcare and tech sectors, which have done better in the period of rock-bottom borrowing costs, rank above average, while energy, finance and telecommunications are below.

Sector averages are misleading, however. Within tech, the implied duration of Amazon and Netflix is above 23 years, whereas International Business Machines Corp. and Intel Corp. are closer to the market average and Hewlett-Packard Enterprise Co., a maker of laptops and printers, ranks near the bottom at less than 14 years.

Meanwhile, electric-vehicle maker Tesla Inc. is an example of a long-duration disrupter in a mature industry. Cable operator Charter Communications Inc. and clothing giants Inditex, Burberry and Under Armour Inc. are less-obvious cases of old-economy but high-duration stocks.

Investors need to be careful with distortions created by the pandemic, which sunk the short-term profits of some more traditional sectors. As a 2021 paper shows, the crisis lengthened their implied duration by tying more of their value to post-Covid earnings, making casinos and cruise companies look more growth-focused than they are.

Markets still predict that the Fed will keep rates below 3% this economic cycle, compared with more than 5% pre-2008. So this past decade’s trend may only be partially reversed, especially because much of the valuation premium fetched by the likes of Amazon and Alphabet reflects the growing dominance of these firms in the real world. Conversely, banks may make more money when rates are higher, but the main reason they have suffered in recent years is weak economic growth and stricter financial regulation.

This is the moment for investors to take a closer look at the duration of their individual stockholdings. But they shouldn’t forget that strong balance sheets and growing profits win the day, no matter where interest rates are.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 20, 2022.



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The Great Wealth Transfer: How rich millennials will invest the billions coming their way

The younger generation will bring a different mindset to how and where their newfound wealth is invested

By Bronwyn Allen
Fri, Mar 1, 2024 2 min

There is an enormous global wealth transfer in its beginning stages, whereby one of the largest generations in history – the baby boomers – will pass on their wealth to their millennial children. Knight Frank’s global research report, The Wealth Report 2024, estimates the wealth transfer set to take place over the next two decades in the United States alone will amount to US$90 trillion.

But it’s not just the size of the wealth transfer that is significant. It will also deliver billions of dollars in private capital into the hands of investors with a very different mindset.

Seismic change

Wealth managers say the young and rich have a higher social and environmental consciousness than older generations. After growing up in a world where economic inequality is rife and climate change has caused massive environmental damage, they are seeing their inherited wealth as a means of doing good.

Ben Whattam, co-founder of the Modern Affluence Exchange, describes it as a “seismic change”.

“Since World War II, Western economies have been driven by an overt focus on economic prosperity,” he says. “This has come at the expense of environmental prosperity and has arguably imposed social costs. The next generation is poised to inherit huge sums, and all the research we have commissioned confirms that they value societal and environmental wellbeing alongside economic gain and are unlikely to continue the relentless pursuit of growth at all costs.”

Investing with purpose

Mr Whattam said 66% of millennials wanted to invest with a purpose compared to 49% of Gen Xers. “Climate change is the number one concern for Gen Z and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders.”

Mike Pickett, director of Cazenove Capital, said millennial investors were less inclined to let a wealth manager make all the decisions.

“Overall, … there is a sense of the next generation wanting to be involved and engaged in the process of how their wealth is managed – for a firm to invest their money with them instead of for them,” he said.

Mr Pickett said another significant difference between millennials and older clients was their view on residential property investment. While property has generated immense wealth for baby boomers, particularly in Australia, younger investors did not necessarily see it as the best path.

“In particular, the low interest rate environment and impressive growth in house prices of the past 15 years is unlikely to be repeated in the next 15,” he said. “I also think there is some evidence that Gen Z may be happier to rent property or lease assets such as cars, and to adopt subscription-led lifestyles.”

Impact investing is a rising trend around the world, with more young entrepreneurs and activist investors proactively campaigning for change in the older companies they are invested in. Millennials are taking note of Gen X examples of entrepreneurs trying to force change. In 2022,  Australian billionaire tech mogul and major AGL shareholder, Mike Cannon-Brookes tried to buy the company so he could shut down its coal operations and turn it into a renewable energy giant. He described his takeover bid as “the world’s biggest decarbonisation project”.

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