An interesting economic backdrop and help us stop scammers.
The economic backdrop continues to impact, both on sentiment and investment markets, but there are pieces within the puzzle that may point to a more positive year.
China, China, China.
In a dramatic about turn the Chinese Communist Party (CCP) has opened China’s borders and is dismantling the Covid protocols they have had in place for the last three years. While I am not a catastrophist and this has been called for some time, there are likely to be health ramifications. China is well behind most of the world on exposure to Covid19 remembering they have had a zero Covid policy. The waves we have seen during our own reopening are likely to follow the same pattern and unfortunately the CCP vaccination policy was actually heavily focused on the workers – not the elderly and most vulnerable. The lowest vaccination rates for a third dose are actually the elderly at approximately 70%. Additionally the Chinese vaccines may not be as effective as some of the western vaccines and the risk of hospitalisation and more severe health consequences could be higher. Financial Times_China’s vaccination issues
This doesn’t sound like a positive and understandably there are concerns about the impact on China’s residents but it does point to an improvement in the Chinese economy as lock downs become a thing of the past. The flow on effects of lockdowns closing businesses, factory and ports as well as obliterating their tourism market has hit the domestic economy as much as they have impacted supply chains around the world. China’s Gross Domestic Product (GDP) growth went from being a major engine driving growth to a more standardised number at around 3.0%. Australia’s GDP rate was 5.9% to September 2022, though we started from a low base in September 2021 (The ‘Delta’ outbreak).
An improving domestic economy will take pressure off supply chains and China is also in front of most westernised countries in regards to its interest rate cycle. Remember those property development companies like ‘Evergrande’ that collapsed in 2021?
Western economies are still managing inflation concerns and rates are near to the top of the cycle while arguably China has been through its rises and has steadied since September 2022. Australia probably has a little bit to go even though the large increases have now moved to more manageable 25bpts hikes.
The CCP has also altered its rhetoric on trade with Australia though, as I have mentioned in previous articles, this may have more to do with China being excluded from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership CPTPP Trade Pact. While we can applaud Penny Wong’s efforts hopefully our Australian politicians on both sides, have reconsidered the ramifications of an overdependence on China.
It would be great to see some progress in building domestic solutions in key industries as the last three years have shown how vulnerable our island can be when shipping is disrupted.
2023 is looking like a more positive economic contribution from China and as our major export partner, this should be good for Australia.
With the midterms behind them and the republicans taking the house, big fiscal spending packages are unlikely to get to the senate. This should help alleviate some inflationary pressures in the US and we are already seeing inflation easing from 7.7% year on year to 7.1% (November 2022).
Another key indicator is jobs growth and unemployment rate in the US is around 3.5%. When you have high employment, human resources become scarce and employees can push for higher wages which is a key part of the inflation number. Some would argue – the most important part.
Jobs growth is still continuing but slowed for the fifth consecutive month in December. Financial Times US Jobs growth
The reason this becomes a positive for the markets is that slowing growth will take pressure off interest rate rises and would indicate we are getting closer to the top of the interest rate cycle. The Federal Reserve has to manage a delicate balancing act to not drive the US economy into a ‘hard’ recession. A ‘soft landing’ would see projected earnings start to increase again and that plays into positive share growth in the medium term.
Yes, we still have the Russia/Ukraine conflict and the energy crisis in Europe and the UK is impacting heavily on home budgets and consumption.
World consumption is likely to slow and that will have varying impacts on companies depending on what part of the market they are in.
Where does that leave us?
We have been cautiously optimistic and that is being reflected in market prices. The All Ords (Australia) has grown by 12.2% since 1 July 2022 (@ 13th January 2023) and the S & P 500 (the US) is up by 4.1% through the same period.
We could see more volatility in the first half of this year before interest rates peak, but uncertainty does offer opportunity.
Now a note of warning on the increase we have seen in scams!
Scammers are getting more sophisticated.
In the December period leading up to the New Year, I had conversations with three separate families who had been, or almost had been, scammed.
The first was within our office, where a staff member’s mother was tricked via SMS into sending money electronically to a bank account to help their daughter. This was something she could ill afford and she won’t be able to recoup.
We then had a client whose father was almost tricked via SMS into sending money to help our client and it was only avoided as he rang our client to check the bank details. Our client understandably had no idea what he was talking about and thankfully that didn’t happen.
Finally at a friend’s New Years Eve party (also happens to be her birthday so that is never a quiet night!) she explained her mother was tricked into making ten, $10,000 payments to an international scammer – yes that is $100,000 before the family found out and no, it is not recoverable.
These conversations were all within my immediate network of friends so predictably when you look more deeply into the statistics it is a bit horrifying.
According to the ACCC in 2022 over $526.3 million was reported as lost through scams. This is reported but you can assume there would be a sub tier that is not reported or the scammed haven’t realised yet. Scamwatch.gov.au/scam-statistics
The two SMS scams above are called ‘phishing scams’ and were likely aided by someone clicking on a link in a text message. We all get texts about ‘online orders’ on their way from Australia Post or the more recent ones are supposedly from ‘Linkt’ saying you need to click on a link to pay a toll as your credit card has failed. Linkt.com.au/help/security-and-fraud/current-scams/Brisbane
The Linkt one is after your credit card details – especially your CVV number – but what these also do if you click on the link is possibly give scammers access to some data on your phone such as your contacts (this can depend on your security settings). They then want to impersonate you via another phone and will say that you lost yours and this is the replacement.
In both of the above two cases, the ‘children’ who passed that forty milestone some time ago, were more than a little exasperated that their parents thought they would ask them for money. They had no pattern of doing this and would not have expected their parents to believe they had an issue.
But, scammers know a couple of things about psychology. Parents, often will quite literally give you the shirt off their back and also might assume the situation is a bit embarrassing and may not want you to feel any worse by discussing it in person. That is what scammers are relying on and based on the two situations above, they are successful at it. Maybe try not to be too hard on them. In many ways it shows how much they care.
The third scam above was far more sophisticated and involved almost daily phone calls to an elderly but perfectly capable woman, still living independently. The scammer was very convincing and would spend up 30-40 minutes a day explaining the underlying investments and how they were doing. I am not sure how this victim was targeted but she was absolutely convinced she wasn’t being scammed and the family intervention, when they became aware of it, caused a very chilly Christmas.
Now that she realises her error, on top of the monetary loss she has lost confidence in her own decision making which is equally hard to watch.
This MoneySmart explanation on investment scams is a very good insight into how clever they are getting and how they are preying on some of our more vulnerable Australian’s. Moneysmart.gov.au/investment-warnings/investment-scams.
So what can we all do about it?
2022 was a tough year in markets and scammers will see this as a great opportunity to prey on non- advised investors trying to recoup their losses.
By sharing this sort of information with as many people as possible we can make it that little bit harder for these criminals.
Who are the most vulnerable?
An alarming statistic which I heard recently is that almost 80% of women die single. Given women generally have a longer life expectancy than men this is probably not that surprising but it is a demographic that scammers are very aware of.
- In Australia, a boy born in 2018-2020 can expect to live to the age of 81.2 years and a girl would be expected to live to 85.3 years. This compares to 51.1 years for boys and 54.8 years for girls born in 1891-1900.
- Australia enjoys one of the highest life expectancies in the world – ranked sixth against the 38 countries within the OECD. Japan is still No. 1 (81.6 years for men, 87.7 years for women).
While modern couples are more likely to be equally capable and involved in the family’s investments, our older generations, the ‘Silent Generation, born 1928-1945’ and the older ‘Baby Boomers 1946-1964’, often had one partner – usually the husband – as the investor in the family, though the wife often managed the family budget.
This death of a partner can leave this group exposed to scammers. Support while they take the reins of managing the family’s assets may provide some very much needed protection through this time.
While many of you have probably done this we would urge you to discuss these sort of scams that are emerging with any friends or family you see as vulnerable. Scammers are very good at what they do so we need to be very much on the front foot with reducing the risk they pose.
As always if you have any questions or need any additional information, please do not hesitate to contact us.
A very happy and hopefully prosperous new year to all.
Paul Forbes | RFS Advice CEO