Investment Matters

An extraordinary month for Australian equities

The market has surged ahead this month, returning +11.7% (All Ordinaries Index). 

This is the highest monthly return delivered since the market recovery in March of 1988 after Black Monday (+13.6%) and amongst the largest monthly returns seen since 1940 (the largest being the market rebound in December of 1971 after Nixon closed the gold window: +18.2%). 

In hindsight, the selloff experienced in February will likely hold a place amongst these historical events. 

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The sharp rebound we have seen this month has largely been a result of improving optimism around our future ability to deal with the health crisis, with multiple vaccines having demonstrated high efficacy.

The market continued its rise this week, spurred by several developments that have been positive for sentiment. This included the US nearing a conclusion to the stand-off for the Presidency, as well as the potential appointment of Janet Yellen as US Treasury Secretary.

Biden to appoint one of the Fed’s own

Reports that President-Elect Joe Biden will nominate former Federal Reserve Chair Janet Yellen to the role of US Treasury Secretary buoyed market sentiment this week.

The appointment is expected to be positive for the US economy, markets and client portfolios.

The former Federal Reserve Chair, who served between 2014-2018, is respected across the board, by Republicans, Democrats and Wall Street alike. She was one of few within the Fed who warned of the risks posed by a speculative housing market before the financial crisis.

Born in Brooklyn, Yellen was raised in a middle-class suburb and earned a degree in economics at Brown before completing a PhD at Yale. During her tenure as Federal Reserve Chair, Yellen was not shy in highlighted the heightened risks brought by widening inequality, stagnant wages, and lack of social mobility. One of her early speeches began by noting that “the extent of and continuing increase in inequality in the United States greatly concern me”, a gap that arguably widened in recent years. She is therefore likely to be intently focused on the impact COVID-19 has had on jobs and supporting the labour market during this time, which will be crucial for a sound economic recovery.

Yellen is also acutely aware of the challenges posed by climate change, being an early backer of the Kyoto Protocol as an economic advisor to President Clinton in the late 1990s. Her focus on climate issues have not wavered since; at a recent forum she preached the need for “public policy-oriented toward making a big difference on climate change”. This, along with President Biden’s ambitions for a Green New Deal, are likely to shape future tax, regulatory and budget policies.

During her tenure, Yellen was also thought of as a “dove”; less inclined to raise interest rates, with a view that the labour market could sustain further strength without causing inflation. The former chair is therefore likely to advocate further stimulus, rather than preach constraint. This, in addition to Federal Reserve’s intention to allow inflation to “run hot” (pursuing an average inflation target regime) likely further skews policy bias towards one of inflation.

The appointment of a former Federal Reserve Chair also highlights how intertwined fiscal and monetary policy have become in a low-interest-rate environment. A treasurer who is ‘one of the Fed’s own’ helps set the foundation for more co-operation between government and the Federal Reserve during a time where coordination is crucial.  

CML Group rebrands 

We attended an investor briefing this week outlining CML Group’s new technology platform, as it the company rebrands to “EarlyPay”. Clients of First Samuel will note that the company now appears under the symbol “EPY.ASX” in their portal (previously CGR.ASX). 

Following the failed takeover by Scottish Pacific in May, we noted that it may take some time for CML to recover the value lost, as several disappointed shareholders weighed on the company’s share price. We have been pleased to see a 72% return for clients in the current financial year as its share price has recovered.

CML’s rebrand reflects a consolidation of its existing brands, as well as a shift towards a more streamlined, technology-focused business. 

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CML recently acquired Skippr, an online invoice financing platform. The platform streamlines information gathering, decision making and funding processes. This reduces the need for manual collection and verification of documentation, assessment, and funding, as well as providing added insights and reporting for risk management.  

Integration of the Skippr platform has reduced onboarding time for new clients from a period of 2 weeks to 24 hours and is likely to translate to further operational efficiencies through the automation of what were previously manual processes.

Critically, this will assist CML in servicing a broader customer base, predominantly SME (small and medium-sized businesses) borrowers, who place a high value on ease of use and speed of decision making.

The platform will facilitate automated credit decision for small facilities starting at 20k. As an invoice financer, CML takes on the credit risk of these business’ suppliers, which are often large corporations, rather than the businesses themselves. 

It is, therefore, able to service this market without taking on the same level of credit risk as other Fintech small business lenders. Furthermore, CML has an excellent track record of prudent lending, with default rates of sub 0.1% over the last four financial years.

We see the integration of Skippr as an important step that facilitates the company’s future growth.