Russia Ukraine Update

by Amanda Cassar | Feb 28, 2022 | Australian Economy, Economy

Russia Ukraine Event Update

On 21 February, Russia asserted its view on the independence of the Donetsk People’s Republic and the Luhansk People’s Republic. Russia began mobilising troops to conduct peacekeeping operations. This was a violation of Ukraine’s sovereignty and independence, the Minsk agreement, and has been widely denounced by the West. Subsequently, Russia instigated military strikes on Ukraine and has invaded. This is an initial event update on the war between Russia and Ukraine.

Russia initiates full scale military assault on Ukraine

The build-up of Russian forces on the Ukrainian border in recent weeks has been a clear indication of intent to take action. US and NATO Member nations have been providing Ukraine with military aid. This includes lethal weapons, anti-armour missiles & artillery, heavy machine guns, helicopters, small arms, ammunition, radio systems, medical equipment and spare parts. Monetary aid has been provided. US Administration has pledged aid to Ukraine of $650 million to date. UK, Danish and Dutch Governments have provided material monetary support.

Nothing has deterred Russia from invading Ukraine with missile strikes and border crossings. Russia seized key strategic assets including Chernobyl Nuclear plant and attacked military and civilian sites.

US and EU Member State Sanction Reactions

Post the initial move on Ukraine, sanctions were imposed. Post the missile strikes, further sanctions have now been imposed by US and other countries. Further sanctions and action may be taken.

US has sanctioned Russia’s foreign debt, meaning it can no longer raise money from Western financial institutions. This will impact Russia’s ability to finance military efforts. Further sanctions are likely as Russia deepens its invasion of Ukraine. All 27 EU Member states have agreed on a range of anti-Russia measures. Russian banks have had assets frozen in the UK. Certain wealthy Russian billionaires have been issued travel bans. Their ability to access funds from EU banks has been denied. Further, trade between EU and two rebel-held regions has been banned.

Germany has halted major infrastructure projects, including Nord Stream 2 gas pipeline,. Additionally, 351 members of Russia’s Duma, or parliamentary lower house have been hit with restrictions. Further restrictions may be imposed excluding Russia from global financial messaging service Swift, used by most banks worldwide. That would seriously curtail Russia’s ability to do business.

At some point, further sanctions would start to harm the economies of those imposing them. Countries such as the US and Germany have strong ties with Russia via trade.

Macroeconomic Impacts

Ukraine is the second largest country in Europe and a huge source of agriculture. The economic damage could have worldwide implications. Russia has inflicted economic damage on Ukraine, with contracts being cancelled and businesses withdrawing people. The White House has warned US silicon chip industry prepare for a ban of exports to Russia. This may well soon extend to all electronics supplies.

Crude Oil WTI has risen about $3 USD/Bbl today or about 3.33%, continuing recent increases.

Source: Iress

Prolonged conflict is almost certain to put further upward pressure on oil and natural gas prices. Sanctions will continue to limit supplies and force prices higher. This is particularly true in Europe, which is already struggling with high energy prices and limited supply. This may mean sustained or higher inflation, which could mean further upward pressure on interest rates.

Gold is usually seen as a safe haven in times of conflict. Main Ukraine exports are raw materials iron, steel, mining products and agricultural products, chemical products and machinery. Ukraine is a large exporter of grains and cereals so there is potential for significant price rises. The US is a large purchaser.

Equity Market and Sector Impacts

The Russian move into Ukraine will cause further increases in equity market volatility. We will continue to feel the impact in rising energy prices. As can be seen from the graphic below, Russia and Ukraine account for a material amount of Oil and gas products. They share a total around 22% of global exports combined.

Russian gas exports to Europe account for 40-50% of its import needs. Energy markets have been tight as COVID related lockdowns have abated and travel resumes. Overlay this with increasing concerns around ESG and banks in western economies under pressure to cease funding fossil fuel projects. This further underpinned already tight supply demand dynamics. We suspect there is already a premium in energy prices for current tensions. There is more upside in prices likely should full scale war break out. This feeds inflationary concerns which are already a dominant theme in equity markets. Most companies in current reporting season cite rising cost pressures in materials and labour.

Soft Commodities

Soft commodities like wheat and corn would be impacted given Russia and Ukraine account for 25% of global exports. This could potentially be an export boost for Australia if supply is restricted or sanctions placed on exports from Russia. Not included in this graphic is ammonium nitrate. Russia is responsible for around 65% of global production. This is the primary ingredient used in fertilisers. Russia banned the export of this mineral product recently, with the ban to extend to April 2022. Should sanctions remain in place for an extended period, the impact of inflation on food prices could be enduring.

Gold

During times of heightened geopolitical tension gold and gold stocks tend to be a safe haven. Gold has been out of favour as risk aversion has been low and sentiment poor. This has been reflected in valuation of gold stocks with many trading at significant discounts to respective valuations as measured by P/NAV. This is highlighted below with gold stocks on the left of the chart. We highlight Northern Star (ASX:NST) which was recently trading at P/NAV of 0.73x with a FCF yield of 7% in FY22. Sentiment appears to be changing as many investors seek safe haven assets.

Source: Iress

Valuation of Gold stocks on the left side of the chart

Source: Goldman Sachs Oct 21

Asset Class Impacts Since the Russian Move into Ukraine

Commodities

Both Oil and Gold have rallied in recent weeks, with the specter of reduced oil supply driving prices higher. Gold has performed its traditional role in periods of market stress, Investors seek protection via the precious metal.

Source: Iress

Interest Rates

Have been largely driven by inflation and market expectations of rate hikes over the next 12 months. US Bonds saw some buying. Investors shifted allocations in a flight to quality given uncertainty inherent in equities markets during times of elevated uncertainty.

Equity Markets

Equity Markets have been volatile for some time, with high growth stocks suffering over the past 3 months. The potential for rate hikes became clearer, however increased volatility presented by the Russian invasion of Ukraine dominated narrative since late January.

Source: Iress

German markets have seen most volatility among major European exchanges. Emerging markets have been languid over the past 12 months compared to developed market peers. Whilst the read-through impact of any conflict on Emerging Markets is likely to be varied, potential higher inflation (and consequent higher US Interest rates) is likely to be a headwind. However, the relatively higher exposure to the energy sector (6.8% in EM vs 3.8% in Developed Markets) may mitigate some volatility.

Source: Iress

Long-term implication for portfolios

It is worth noting historically, market impacts of localised geopolitical events like this have been short-lived. Diversified model portfolios are built on a Strategic (Long-Term) Asset Allocation foundations that include stress testing for geopolitical events.

We continue to monitor the situation closely as events unfold. We will continue to provide Russia Ukraine updates. Further deterioration in this conflict may necessitate the need to implement defensive portfolio changes. At this stage we are not making changes and keeping a watching brief on our Asset Class weightings. There is a fair degree of defensiveness built into current settings. The situation is deeply concerning and we will monitor closely.

From a very long-term perspective, we note that volatility has historically tended to cluster (both to the upside and downside.) See the chart below on the left. If investors react to large negative movements by selling out of equities, they run the risk of being out of the market for large positive days. The consequences of missing a handful of these “best days” can be substantial. This is evidenced by the chart below on the right. So, we are mindful of this before taking action and continue to take a long term view.

Date: 27th January 2022 Source: ASX

Author: Andrew Simpson, Andrew Ash, Ross Stanley, Steve O’Hanna. Reviewer: Matt Olsen

Footnote

This document has been prepared by Actuate Alliance Services Pty Ltd (ABN 40 083 233 925, AFSL 240959) (‘Actuate’), a member of the Insignia Financial group of companies (‘Insignia Financial Group’). This is for use and distribution by representatives and authorised representatives of Australian Financial Services Licensees with whom any Insignia Financial Group member has a commercial services agreement.

Information in this document is of a general nature only and does not take into account your objectives, financial situation or needs. You should seek personal financial, tax, legal and such other advice as necessary or appropriate before relying on the information in this document or making any financial investment, insurance or other decision.

Information in this document reflects our understanding of relevant regulatory requirements and laws etc as at the date of issue, which may be subject to change. While care has been taken in preparing this document, no liability is accepted by Actuate or any member of the Insignia Financial Group, nor their agents or employees for any loss arising from any reliance on this document.

If any financial product is referred to in this document, you should consider the relevant PDS or other disclosure material before making an investment decision in relation to that financial product.

Please don’t hesitate to reach out to the Gold Coast team of financial planners at Wealth Planning Partners to discuss your personal situation.

Russia Ukraine Concerns and your Finances

by Amanda Cassar | Feb 25, 2022 | Australian Economy, Economy, Finances, Investments

Worried about the impact of Russian Ukraine concerns and your finances? Please reach out directly to the Wealth Planning Partners team if you want to discuss your personal financial plan.

So, a little perspective on the Ukraine and Russian situation. This geopolitical event is concerning on practically every level. And there are a wide range of potential outcomes and scenarios. Putting aside views on the way this might evolve, our role is to look at this financially and you are secure. This requires us to avoid prediction and instead use multiple layers of thought.

Want the Good News?

Your direct exposure to Russia and Ukraine is negligible. We maintain exposure to emerging markets for some clients given the attractive valuations and diversification. Weightings to Russia and Ukraine are small. Russian companies only account for around 2.8% of the emerging market basket for equities and around 4.1% for bonds. Ukraine doesn’t register on factsheets because it is so small. Perversely, if prices in these regions fall significantly, the expected reward for buying might exceed the risk. This in turn creates a buying opportunity—but that isn’t the case right now.
Knock-on effects? The risks are much more notable, but we do see some offsetting positives. Again, starting with the good news… tensions are pushing commodity prices higher. This has supported sentiment toward energy companies, which have done very well for portfolios lately. We carry a long term, valuation-driven focus in portfolios (preferring cheaper assets) which tend to do well in this kind of environment.. That said, we can’t rule out an exodus of investor money if things deteriorate quickly. Never expect straight lines in markets! And if negativity really takes hold, it could open a world of opportunity to add undervalued assets to your mix.

Rest assured, we are monitoring this situation closely and hearing from a range of industry experts to understand the impact as it evolves. Ultimately, we are keeping a close eye on any consequential impacts and given everything we know (while acknowledging the unknowable), it reinforces the benefits of a long-term, valuation driven approach. We’re staying in touch with the Morningstar research house to navigate this uncertain period, keeping us all on the path to achieving your goals.

What to do?

If anything changes, we’ll be sure to let you know, but for now we hope you find this touchpoint useful. In the meantime, it’s usually best to ‘hold the course.’

Please don’t hesitate to contact the Robina office or your adviser directly if you have any questions or issues. Gold Coast Financial Planners, Amanda Cassar & Mitchell Cassar are here to take your calls if needed. Contact details here.

Dreaming about money? What does it mean?

by Amanda Cassar | Dec 4, 2020 | Emotions, Finances, Money

Do you dream about money? Daydream even? When you have dreams about money, it can be a bit of an interesting view into what your subconscious is thinking about when it comes to the topic of money or finances. Your dreams can influence your decisions, so it’s a good idea to delve deeper into what you’re dreaming about. Are you dreaming of winning money or giving money away? Whatever the case, there can be a hidden meaning. Let’s take a look at what it all might mean?

What does it mean to dream about money?

Firstly, it’s not weird to have dreams about money, you’re not the only one. Many folks out there have dreams about money. Even Women’s Day have run articles about dreaming about the dollars! Although you might think it’s odd, it can be fun to try and see what it all might mean!. Once you have a better understanding of what your dream might mean, you can nut out a plan and take action. We’re going to go through some common dreams that are commonly experience – then we can see if we can make these become a reality!

Dreaming about finding cash?

How exciting! You’ve found money! You might find $20 in a jacket or purse, or perhaps you’ve spotted a few bucks on a footpath. Just think… did you feel excited? Perhaps the amount of money you found is somewhat less important than the exciting feeling you get finding it. When dreaming about finding money, your subconscious could be indicating that you might have misplaced some cash somewhere. Have you checked to see if you have any unclaimed money around? Who knows… it’s worth checking!

Dreaming about winning money?

Dreaming about winning money doesn’t necessarily mean that you’re about to win big in some lottery draw. However, it could insinuate that you currently have positive energy in your life, making you feel happier or might have a bit more luck than usual. Use the opportunity to harness this positivity and look for ways to boost financial security. Perhaps you could start a side-hustle that suits your hobbies as well as your income goals.

Dreaming about losing money?

This one’s more stressful! Even though you can wake up from such a dream, you might be in a situation where it’s a representation of your current reality. Meaning, your real-life finances don’t match your financial goals. Take a look at your budget. Are you spending money on items that don’t serve you any value? Maybe you could cut the pay-tv? In turn, needing to rein in or cut out necessary spending can take away the feeling that money is slipping through your fingers. Why not take advantage of this Budget Planner?

Dreaming about a shopping spree?

We all like this one, right?! A fantasy shopping spree! A spending spree that satisfies your wants and needs sounds like a fantastic dream. However, excessive shopping can also have the down-side of placing you into debt. With this in mind, you might want to re-evaluate your money goals and make saving a priority.

The bottom line

As you probably know, heaps of people dream about money at some point in their lives. When you experience this for yourself, you can decide what action you need to take. Listen to your subconscious and aim to move toward a financial life that brings you peace of mind. If you’d like to review your own finances, reach out to our Gold Coast based financial planning team, Amanda Cassar and Mitchell Cassar, based in Robina.

Do I need Business Expenses Cover?

by Amanda Cassar | Nov 26, 2020 | Advisers, Budget, Business, Debt Management, Insurance & Protection, Money, Wealth

As a result of all the global economic changes from the COVID pandemic, many have started their own business to generate income. With this global shift, people have figured out new ways to be their own boss, in turn, gaining more control of their finances, and have found new opportunities. For some, this has provided entrepreneurial pathways to success. However, operating your very own business has its own pressures too. Running your own show can be super rewarding, and watching it success makes it all worthwhile.

But, you may ask, what happens if you’re unable to work? How do all the fixed business expenses get paid? You’ve got commitments with rent and staff! What can you do?

Business Expenses insurance – what is it?

So, if you’re self-employed or have a small business, you can be reimbursed for particular business expenses incurred while you’re totally or temporarily disabled – (up to your insured monthly benefit amount for up to 12 months). This ensures that you can keep the doors open whilst you recover.

Don’t forget, if there is more than one owner, you will receive your share of the covered business expenses.

What are the key features of Business Expenses cover?

You will receive a monthly benefit for up to a year for certain business expenses that are incurred should you become totally disabled
You can also choose a waiting period of either 14 or 30 days
If you’re on claim the premiums are automatically waived while you’re receiving benefits
Recurring disability benefit continues a previous claim with no new waiting periods if the same disability recurs
Make sure you go for Increasing Cover, so keep in line with inflation
And, as a bonus, it’s generally tax deductible!

Do you need Business Expenses insurance?

So, consider Business Expenses insurance if you:

have a business or are self-employed.
You have recurring business expenses like rent, non-income producing staff, accountancy and fixed business overheads.

To get further information with regards to Business Expenses cover, please do not hesitate to reach out for a chat using the form below.

Or contact your Gold Coast based financial Advisers, Amanda Cassar or Mitchell Cassar or Brisbane based adviser Richard Ayre.

Tenants in Common vs Joint Tenants

by Amanda Cassar | Nov 2, 2020 | Advisers, Investments, Money, Wealth

What is ‘Tenancy In Common’

1. “Tenancy in common” allows two or more people to be owners in a property. Each owner has the authority to will their share to anyone on death.

2. “Tenancy in common” is different as the transfer of the property in the event of death differs. In joint tenancy, the title of the property automatically passes to the survivor. In tenancy-in-common, the title passes to a beneficiary of the owner’s choosing.

Joint Tenancy: What’s the difference?

A Will ensures the interest in the property will be distributed according to wishes. Usually, probate must be obtained. To create a joint tenancy four unities must be present:

Joint Tenancy: Transfer requirements

In the detail: ‘Tenancy In Common’

Ownership Interests

Where tenants in common may not claim ownership to an individual part of a property, they may have different ownership interests. e.g. Sarah and Debbie own 25% each of a property, while Leticia owns 50%. A tenancy in common may be created anytime. An individual may obtain an interest years after others entered into tenancy-in-common ownership.

A tenancy in common also differs from a tenancy by the entirety in which the owners of property are married. Each spouse has an equal and undivided interest in the property.

In contrast, joint tenants obtain equal shares of a property with the same deed at the same time. Terms for joint tenants are detailed in the deed, title or legally binding property ownership documents. Some states have joint tenancy as the default ownership for married couples. Others have tenancy in common. A joint tenancy is broken when one or more tenants sell their interest in the property. e.g., one or more co-tenants buys out the others. The property is sold and proceeds distributed equally among the owners. Or a partition action is filed, letting an heir sell their stake in the property.

Rights of Survivorship

When an owner dies, what happens to the property depends on the type of ownership. Tenants in common have no rights of survivorship.

Unless the deceased person’s will specifies his interest in the property is to be divided among surviving owners, a deceased tenant in common’s interest belongs to his estate. Conversely, with joint tenants, the deceased’s interest is automatically transferred to the surviving owner/s. For example, when four joint tenants own a home and one dies, each of the three survivors ends up with one-third of the property.

Tenancy-In-Common Agreements and Taxes

Because a tenancy-in-common agreement doesn’t divide a property, most jurisdictions won’t separately assign tax bills in proportion to interests. Usually, tenants in common receive a single property tax bill. The tenancy-in-common agreement outlines implications of shared ownership on property taxes. This includes how tax liability is contractually distributed to each owner.

In many areas, a tenancy-in-common agreement imposes ‘joint and several liability’ on tenants. This means each owner can be liable up to the full amount of property tax. This is regardless of their ownership interests. In this case, the owner is entitled to a deduction equal to the amount he actually paid. Where joint and several liability is not imposed, owners can only deduct property tax in proportion to their ownership. No matter the amount they actually paid!

Pros and Cons of Tenancy in Common

Buying a home with a family member, friend or business partner as tenants in common helps individuals enter the market more easily. Because deposits and payments are divided, purchasing and maintaining the property may be less expensive than on your own. Also, borrowing capacity may be greater when one individual with a greater income owns a larger percentage of the property. In addition, a co-tenant may use a will for designating who receives his interest, giving you more control over your share. This is a great tool for Estate Planning!

When mortgaging a property as tenants in common, all borrowers sign the documents. That way, the lender can take over the entire property in case of default. If one or more borrowers ceases contributions to the mortgage, other borrowers must cover the payments. That part’s not so great! Also, if a co-tenant dies without a will, his interest goes through probate, a costly exercise. In addition, remaining co-tenants may own the property with someone they do not know. Furthermore, a tenant in common may file a partition action, forcing unwilling co-tenants to sell the property.

As you can see, there’s a lot to be considered before choosing which way to go.

Fore more information, head over to the Canstar site to confirm that basics about “Tenants in Common vs joint tenants: What’s the difference?” And getting your own legal advice is always a great idea.

It’s complicated, right? So don’t hesitate to check in with your lawyer. Or give your Robina based financial advisers at Wealth Planning Partners a call on 07 5593 0855. Find out more about Amanda Cassar and Mitch Cassar on our website.

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