Camelot Portfolios Talking Points

Australian Economic Leash

The west, for the most part, has had consistent economic growth since 2008. Tucked away in the bottom corner of the globe lies Australia; this country has not exhibited the same economic problems compared to its European counterparts. The major reason why Australia has grown substantially lies in exports to China. According to the Australian Trade Commission, China accounted for A$107.5 billion (USD$81 billion) in 2014 in goods in services exported (Austrade Economics). This accounts for almost 40 percent of exports in 2014 (see chart below)(Austrade Economics). The majority of the Chinese exports comes from Australian iron ore which accounts for 80 percent of the exports to China in 2014 (Austrade Economics). The slowing demand in infrastructure and other major real estate in China since 2015 has influenced increasing dependence of trade with China which has created substantial pressure on their policy makers with the slowing growth in China. 

One of the pressures with the slowdown in the Australian economy is to lower interest rates by the Reserve Bank of Australia (RBA). The RBA has lowered the target rate from 2% at the beginning of 2016 to 1.5% (Trading Economics). The yield curve has started to shift towards a flattened yield curve, but it is still steeper compared to other developed markets.  Although the RBA has loosened monetary policy, there has been a pickup in the economy starting in July (Trading Economics). This is highly correlated to the recent acceleration in the Chinese housing market (Trading Economics). It’s difficult to say how much of an influence trade with China has on the monetary policy for Australia, but it certainly has an effect on the macroeconomic picture which central banks depend on to adjust interest rates.

The Samsung Problem

Ever since the release of their next generation cell phone, Samsung has had difficulty with unexpected explosions from batteries on their flagship Galaxy Note 7. The internal lithium ion batteries have tended to overheat for differing reasons in the phone causing a catastrophic reaction (Peterson). On Monday, Samsung released a statement recalling all Galaxy Note 7 phones as well as a restriction on retailers from selling this device (SANG-HUN). Shares have taken an 8 percent hit, which is their largest daily drop since 2008 (SANG-HUN). According to Samsung’s last quarterly report, mobile devices account for 47 percent of revenue (Samsung). Although this is not nearly as concentrated as the iPhone is for Apple (58 percent) it does present a significant impact to Samsung’s income statement (Apple). There will likely be more news coming out about the financial impact to Samsung at the end of Q4, but trust in this technology brand in this competitive space will need to improve in order to stay in this line of business.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Apple. 10-Q. July 2016. 2016.

Austrade Economics. "How dependent are Australian Exports on China?" 2015 (February). PDF Doc.

Peterson, Andrea. Why those Samsong Batteries Exploded. 12 Sept 2016. 2016.

Samsung. INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF SAMSUNG ELECTRONICS CO., LTD. AND ITS SUBSIDIARIES. June 2016. 2016.

SANG-HUN, BRIAN X. CHEN and CHOE. Why Samsung Abandoned Its Galaxy Note 7 Flagship Phone. 11 October 2016. 2016.

Trading Economics. China Industrial Production. Aug 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.

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