Invest cautiously, diversify and reduce your exposure to interest rate sensitive markets, Martin Hawes advises

Invest cautiously, diversify and reduce your exposure to interest rate sensitive markets, Martin Hawes advises

Authorised financial adviser Martin Hawes is urging retail investors to be cautious in the wake of Donald Trump being elected President of the United States.

Hawes, who is also the investment committee chairman of Forsyth Barr’s Summer KiwiSaver, says: “There’s a lot of uncertainty still.

“In fact, it’s probably increased with this, because we don’t know what Donald Trump will do. Choose any one of the 150 promises he made that he contradicted.”

Speaking to interest.co.nz in a Double Shot Interview, Hawes makes the following suggestions to mum and dad investors:

1. Diversify your investments.

2. Be risk adverse. “I’m remaining cautious on my own portfolio. I’m not increasing risk on it yet. I’m not buying any equities yet,” he says.

3. Reduce your asset location in interest rate sensitive markets. Hawes suggests lowering your asset allocation in property and fixed interest or bonds.

Why? Interest rates are on the rise.

Hawes explains “Property depends on borrowing a lot, and the income from property is compared with bonds. So if bond yields are higher, then property yields need to be higher as well. You do both of course by adjusting price.”

What’s pushing interest rates up?

Of all the promises Trump has made, Hawes believes he will be successful in pushing through tax cuts. He has promised to slash the corporate tax rate to 15% from 35%.

“That probably will stimulate the economy, it will probably stimulate companies,” Hawes says, as it will encourage infrastructure spending.

“The United States is probably a bit like New Zealand - overdue for some infrastructure programmes.”

So on the one hand we can expect to see more investment, yet on the other hand tax cuts will lower the Government’s revenue in the short-term.

“Where’s the difference going to come from? Higher debt. America’s going to be borrowing more - probably the US Government is going to be borrowing more.

“So the world is different in the sense that I think interest rates are likely to be higher than what they would have been three or four days ago.”

How much of a drag will protectionism have on a market buoyed by fiscal stimulus?

“I don’t know how that will play out, but if you look at the bond market, [it is] saying, ‘We don’t like this terribly much and we’re pushing the price of US treasuries and other bonds down, and we’re pushing interest rates up’.

“This is a bond play, not an equity play. It is bonds that really moved. Equities have done that, but they’ve thrashed around and really gone nowhere.

“The protectionism thing would be one of the worst things to happen. The big beneficiaries of globalisation are not some fat cats sitting on Wall Street, it’s actually poor people.

“There have been a billion people in absolute poverty over the last 25 years who have joined the lower middle class... They’re no longer subsistence farmers. They’re no longer abjectly poor.

“To go back to protectionism would be one of the very worst things. Globalisation and free trade has been a wonderful thing.”

How will Trump affect the ethical investing movement?

The Trump victory has made winners of pharmaceutical, defence-related and oil and gas companies, and losers of sustainable energy providers and car manufacturers based in Mexico.

Yet Hawes believes Trump’s denial of climate change won’t derail the ethical investment movement the world has had an awareness of for the last decade, but has only just started gaining traction in New Zealand with the proliferation of KiwiSaver.  

“I don’t think the socially responsibly investment trend will actually lower all that much at all. People might thrash around to look for suitable investments in that area - it might be a bit more difficult, but I don’t think it’ll stop people,” Hawes says.

He believes there will be a backlash from the likes of those who have taken to the streets in protest against Trump this week.

“Those people can make a statement, I think, by trying to choose socially responsible investments.”

Should Trump’s foreign policy be giving us the jitters?

Hawes recognises Trump is not a dictator, and can’t push through policy changes without support from Congress.

Yet he remains “worried” about his “short attention span”, erratic comments and aversion to being constrained by policy.

“You get something like the Russians marching into Estonia. Estonia is a NATO country. It’s meant to be one for all, all for one. Will he honour that?” Hawes questions.

“Russia, North Korea - these kinds of places will no doubt test him. They’ll give him a prod and see how he jumps. I don’t know how that’s going to work out.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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So I can't buy shares/bonds/term deposits/property?
Can only diversify by having a lot of different cash accounts with various banks that have Govt guarantees?
Or gold??

Incidentally, when all the Govts borrowed more, interest rates dropped, even to negative rates; which I admit is counter-intuitive; you would think that if demand for money went up, it's interest rate would too, whatever arbitrary cash rates were imposed.
Can't see how interest rates would be allowed to rise, as no indebted Govts would be able to tax the workers enough to pay the interest on the debt, let alone pay off the debt.

Unless you print money and buy bonds, as central banks have done in vast volumes in the last 8yrs, its markets (who don't care about you personally) not Govts or central banks that set fixed rates - and it seems the days of central banks blowing out their balance sheets to do that seem to be numbered. With regards floating rates, yes, central banks can dictate that, but only whilst they have inflation under control - to date thats certainly been the case but there are small signs of rising inflation, and if the market is right about the likes of the Trump presidency which has seen inflation linked bonds rise to recent highs, its a brave man who is effectively vely relying upon inflation to remain low forever - we've had plenty of shocks/surprises over the past 8yrs, an inflation rise could just be another one of those, with consequences for the unprepared.

Well said Grant A.... .. I agree.

Where are you going to find these banks with government guarantees? They certainly won't be in NZ,as we operate an Open Bank Resolution(OBR) system and have done so since 2013. There are NO government guarantees here. We are the only developed economy without some form of deposit guarantee scheme.
At some point,interest rates will rise-I don't know when or by how much-but the cycle has not been abolished,just stretched out.

Interest rates are already starting to rise. We've entered a new cycle. This will be confirmed by the FED in December.

Australia is closest, none here,A$250,000, per depositor per bank; I've heard of the OBR obviously

If Trump fulfills his promise to brand China a currency manipulator and slap a 40% tariff on their exports to the US, I think would be huge...would collapse China's economy, lower demand for our exports, and our assets like houses and farms

Not to mention what tit-for-tat relatatory tarrifs between countries will do for inflation and interest rates - the RBNZ could have their inflation target, plus more, well before current forecast, and they be forecasting that and moving well earlier if that does start to develop

Are China manipulating FX the same effect of the US Fed printing ?

What’s pushing interest rates up?

Hmmmm....

Just as gold had risen recently, it was smacked down again the past few days; from $1,304 Tuesday to $1,255 at the AM fix today, and down big again to $1,236 at the PM. That’s almost $70 in just two sessions.

I have to believe that the resulting action across these two trading days is linked to the disorderly selling in bonds, especially the massive irregularities for interest rate swap trading. What the UST market did was show very large margin calls that were likely good for more than just the UST market. If we are talking about derivatives, that would mean UST’s as collateral, and therefore a good bet that gold was in play as a last-resort funding method (highly negative for gold prices).

It’s not just money markets, however, where the “dollar’s” negative influence is felt. Oil prices have been down again as they have on and off these past few months. And like the last major downturn for WTI, this one bears the scars of negative “dollar” conditions, too. From relative high to low, the futures curve starts quite flat, closer to its natural instincts for backwardation rather than contango, and as the selloff gathers the unmistakable “hook” at the front end shows the financing part that is setting all marginal price action.

Put simply, more contango means less “dollars.” And that, of course, brings in the Chinese where last year’s most troubling correlation was where it both CNY and WTI dropped down at the same time. Going back to mid-October, that’s what we find for both (and right on schedule, too). Read more

I do not want to insult all investors...but. We all ready have a taker.

Save money, invest wisely ..the new Pay/Wave way...a 4 year trial.... begins soon. in the USA.

Try "Nepotism", the New American Familial way. Free housing could be included.

A single pence saved to keep it all in the Family way..otherwise..

Save as much as possible. Cannot lose.

Why buy a shack in NZ.

Sorry house only comes in one colour. Limited supply. Tax Paid perks though.

Fly Buys included. Butler service included. Make millions, been done before.

There is maybe a better plan, tried before, not sure if it is legal, but make a plan, any plan will do..

Get the Ratepayer to fund it....the people in charge then toss it in the bin, some are none the wiser. Minimum of 500k can be charged..easily.

I do not think there is a claw back clause....but better check, before trying outside of Awkland.

Just got home from a great night in the tron.things ain't so bad guy's cheer up will yas