CPW Newsletter: Third Issue
Welcome to the third issue of the Cambridge Private Wealth newsletter.
The 2016 Calendar year has been an interesting one for sharemarkets and global politics. Cambridge Private Wealth thanks you for your support during this time. We have developed a great base of clients who have supported the change from my previous employer and we feel now we have settled into a great rhythm when it comes to providing you, our valued client, with the advice and services you need and want. I believe that 2017 will be another defining year globally and perhaps, what once was, will be again in many regions in the world (eg – Changes to the EU, Russia continuing to expand its’ region and so on). I have found it amazing that those individuals who are appointed leaders across the globe have been so far from reality to let the world divide in such an enormous way.
The good thing is we are here, and with 2016 almost passed we can look forward to 2017 in a positive manner. I feel very fortunate to have you as my clients and will continually endeavour to give you the best result.
As always, if you can think of any family or friends who might be interested in good, realistic financial planning advice, please pass on my details or direct them to our website: www.cambridgeprivate.com.au
Have a safe Christmas period and I look forward to seeing you in 2017.
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USA Presidential Elections.
Donald Trump has certainly put a cat amongst the pigeons. Some of his proposed measures are:
- Cutting company tax from 35% to around 20–25%.
- Cutting income tax, with three basic rates: 12%, 25% and 33%.
- Scrapping Obamacare.
- Increasing spending on defence by US$450 billion and Veterans’ programs by US$500 billion.
- Introducing a US$300 billion infrastructure spending program.
- Taking a tough stance on immigration, with promises to clamp down on both legal and undocumented immigrants.
Looking beyond the US, Trump has pledged to introduce a much more aggressive trade policy, including:
- naming China as a currency manipulator and putting tariffs on some Chinese imports,
- changing the terms of the North American Free Trade Agreement (NAFTA), and
- abandoning the Trans-Pacific Partnership (TPP).
Investment Manager, Oaktree’s Howard Marks stated about crystal ball investment:
“I am not someone who invests on the basis of expectations for the future … When you react to what actually happens rather than guess about what might happen, I think you make less mistakes”.
My point here is, let’s wait and see what Trump does. The market may have overreacted on the upside at the moment.
Australian Retailing Landscape
I think it is relevant with Christmas shopping in full swing out at centres like Westfield and so on that we think about the changing landscape. I am very old school and do not think I have ever bought a gift online. However, over the last couple of weeks I have had trucks pull up outside the house and boxes come in. Ally, my wife, has turned to purchasing gifts for the kids online unbeknownst to me, to save the time and effort of going into the stores.
Below is an article written by Daniel Mueller of Forager Funds Management regarding Amazon and our retail landscape in the future.
How big could Amazon.com, Inc. (NASDAQ:AMZN) be in Australia? There have been recent media reports that the U.S. online giant will hit our shores next year. The company, or at least an unnamed executive, has stated an intention to “destroy” Australian retail. And why not? Australian retail margins are among the largest in the world. But should retailers be shaking in their boots? Will Amazon march into the country like the Roman infantry, taking whatever market share they want? To me, this reads more like the blue sky case. So what does a more realistic scenario look like?]
The Australian E-Commerce Landscape
It may surprise some that online penetration in retailing is less than 15% in most developed countries. In fact, very few are greater than 10%.
And Australian consumers have lagged their offshore counterparts when it comes to shopping on the internet. Australian online retail spend is just 7% of total retail sales. One reason could be because Australia has gone 23 years without a recession. The Global Financial Crisis (GFC) was a major catalyst for overseas consumers to seek cheaper alternatives. Amazon’s customer base accelerated during the GFC. For the three years leading into the GFC, it was growing at around 16% p.a., but accelerated during the next three years to around 23% p.a.
Australia was cushioned from the GFC by the resources boom, a buoyant property market and good starting points for government debt (low) and interest rates (relatively high). In this environment, there was little incentive for consumers to change their habits.
Another factor could be population density. For an online retailer, delivery costs are much higher when customers are spread out over vast distances. It’s no surprise that Japan and the UK are leading the world in online retail.
So where does that leave Amazon?
Undoubtedly, Amazon entering Australia would be met with much fanfare and accelerate online growth. This would enable Australia to gradually catch up to global peers in terms of online penetration. But Amazon’s starting point is a market with just 7% online penetration.
So how much of the Australian online market could Amazon gain? Let’s once again look offshore.
While Amazon is the largest online retailer in the US and Europe, it by no means has a majority share of these markets. Globally it tends to gain about a 15-20% share of e-commerce, a little higher in Japan, despite having the second largest share.
Applying this level of online market share to Australia, Amazon could expect to gain about 1.0-1.5% of total retail sales.
Perhaps Amazon’s presence will raise awareness of e-commerce and rapidly boost online share to levels seen offshore. In this scenario, Amazon could get to 3% or possibly 4% in say five to ten years. But even then, it will hardly be large enough to “destroy” the Australian retailing landscape.
Cambridge Private Wealth Pty Ltd (ACN 607 806 244), Authorised Representative and Credit Representative of Charter Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.
General Advice Warning – This newsletter contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.