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In the last week or so, we have seen an escalation in volatility in the Australian sharemarket. This follows a month of significant volatility in global equity markets, resulting in price declines of between 7% and 10%.

A perfect storm to blame

Elevated geopolitical risk, persistent issues in Europe, US monetary and fiscal policy, slowing growth rates in China, falling commodity prices and large moves in foreign exchange rates have had a marked impact on investor sentiment recently. 

These factors in isolation can affect markets to varying degrees but the recent interaction between all of them has been a strong negative influence on investor sentiment, and has created the recent increase in sharemarket volatility globally.

Geopolitical risks have increased markedly over the past couple of months. 

In particular, the rise of the Islamic State (ISIS), the increased pandemic risk from Ebola and the ongoing tension between Russia and Western Europe over Russia’s active support for the Crimean separatist movement in the Ukraine, have dominated news-flow and soured investor sentiment. 

This perfect storm of negative global events has resulted in a loss of confidence in sharemarkets around the world as investors ask if things will get worse. 

Of course that’s possible, but more bad news has already been factored in to many sharemarkets to some extent. 

In fact, we believe, based on current valuations, that now may be a good buying opportunity both here and selectively overseas.

The positive news is that, globally, inflation is contained and US growth, while modest, remains positive.

And China is still looking at around 7% p.a. growth (albeit that being a little lower than expected).

Further, corporate profitability is strong with balance sheet improvement post the Global Financial Crisis increasing the stability of corporates.

So, looking through this recent volatility, the foundations for a return to more stable sharemarkets are in place.

Impact of US Interest Rates

Global markets have for some time placed significant emphasis on the Federal Reserve (Fed) and the continued wind down of its bond buying program called Quantitative Easing (QE).

The likely timing of the next increase in US official rates continues to be a dominant driver of investment markets.

The QE program is due to end this month after being wound back consistently and predictably over the past year.

With the end of QE the market has speculated that the logical progression for the Fed is to increase official interest rates.

To address this speculation, Fed chairperson Janet Yellen has committed to low interest rates for the time being and has intimated that it will be a considerable time before interest rates rise, making it clear that rate changes will be data dependent rather than calendar based.

Despite these assurances, and US inflation and growth rates remaining subdued, the ending of QE along with a ‘flight to quality’ buying by risk conscious global investors in light of recent events, has seen the $US strengthen against most major currencies.

In Australia’s case the $A has depreciated by approximately 9%. The relative decline in the $A has occurred in part due to the expectation of eventual rising rates in the US which would narrow the difference between their interest rates and ours, which in turn puts downward pressure on the $A.

The $A has also come under pressure as a result of the weaker than expected economic data from China.

Given the strong trade links between China and Australia, particularly given their demand for our iron ore and coal, any weakness in expectations for Chinese growth should result in a poorer outlook for Australia’s export sector which is dominated by resources.

For this reason, offshore investors wishing to maintain their $US purchasing power have sold $A-denominated assets, key among these being Australian listed company shares. 

This created something of a vicious circle as more selling of equities by foreign investors acted to push both the share market and the $A lower.

Europe Continues to Struggle

Elsewhere on the global front, European data over the past month has been far from positive, forcing the European Central Bank (ECB) to cut interest rates to all-time lows of 0.05%, placing pressure on ECB President Mario Draghi to honour his previous commitment to do ‘whatever it takes’. 

Adding to this, sentiment indicators from Germany (Europe’s largest economy) sank into negative territory for the first time since November 2012, lending support to the IMF and World Bank cuts to global growth projections for the remainder of 2014 and 2015. 

In our view, while Europe continues to deal with its economic issues, the valuation of its equity markets remains relatively attractive and should present selective buying opportunities after this recent bout of volatility.

Falling Commodity Prices a Contributing Factor to global volatility

Commodity prices in general have responded to the weaker global growth expectations and fallen. 

And, contrary to the usual situation at times of elevated tension in the Middle East, the oil price has been falling dramatically. 

This has in turn been detrimental for the Russian economy with oil being Russia’s largest export (around 58%). 

This has acted to elevate Russia’s interest in the Ukraine as the majority of the natural gas Russia supplies to Western Europe is transported in pipelines traversing the Ukraine. 

Clearly control of these pipelines is significant in gaining surety of the revenues for natural gas sales. 

This conflict, and the sanctions the EU has imposed on Russia for its active support of the Crimean separatists, further serve to increase geopolitical tensions and global sharemarket volatility. 

Australian Banks and Resource Companies Back to Fair Value

In the Australian sharemarket, we have witnessed a decline of close to 10% over the past few months, which has effectively eroded the gains for calendar 2014 to date. 

Bank shares and mining shares, the two largest sectors in the Australian equity market, have suffered the largest falls for differing reasons. 

The banking sector, which has experienced very strong returns over the past few years, has recently been faced with the prospect of regulatory changes to bolster the strength of Bank balance sheets to bring them in line with higher global standards and strengthen the domestic banking system to withstand shocks in times of crisis. 

The Murray inquiry is currently considering these changes and speculation around the likely outcome has negatively impacted Bank share prices. 

That said, the major banks are trading at valuations as low as 12-13 times current earnings and with fully franked dividend yields between 5.6% and 6.1%. 

With net interest margins remaining steady (or possibly more favourably following reductions in term deposit rates), bad and doubtful debts remaining at very low levels, lending growth at about 5% sector wide and earnings per share expected to be at around 7% p.a., the sector now looks relatively attractive. 

Resource companies have been significantly affected by Chinese economic data released in mid-September. 

The data indicated that Chinese industrial production growth was the lowest since the 2008 global financial crisis, which has increased doubts that China’s 7.5% p.a. target annual growth rate will be reached. 

As China is Australia’s largest export destination, this news was not good for Australian resource companies. 

Over the past few months, there has been a massive increase in export volumes of Australia’s key commodity, iron ore. 

Steep declines in iron ore prices have resulted and these falls coupled with the aforementioned decline in Chinese industrial production, have hurt domestic sentiment. 

As a result, resource companies are also looking more attractive from a valuation perspective for investors than they have for a while.

Australian shares look attractive

Despite these global and domestic issues, from a valuation perspective Australian equities are generally not expensive and are tending toward being attractive relative to the 20 year trend of the price multiple of current earnings.

Interestingly, a declining Australian dollar favours a number of sectors that will aid Australia’s transition from being a mining led economy to a more broadly based economy. 

For example, Australian manufacturers and exporters are more cost competitive under a lower $A.

Tourism operators are likely to experience a boost in profits as Australia becomes a cheaper destination for foreigners. 

Further, the retail sector, which suffered heavily from the high A$ and adapted by reducing costs and providing online offerings, will also be a beneficiary.

A Time to Buy? We think so.

It is important to remember that sharemarkets are bound to go through periods of higher volatility from time to time, and that investment in quality assets is a long term endeavour. 

As a consequence, we believe clients should stay the course during periods of higher volatility. 

Particularly when, as is the case now with current earnings suggesting that sharemarket valuations are attractive, the risk of a major equity sell off is low (in the absence of an unforeseen external shock, of course). 

In fact, at these current valuation levels, it may prove to be opportune to review portfolios in a positive light.

Financial Planning Services are provided by Scott Millson, Authorised Respresentative of Australian Unity Personal Financial Services Ltd AFSL: 234459


According to the D&B Global Business Failures Report , the number of small businesses going into liquidation has increased by 48 percent. If these findings are any indication, small business owners have to exert more business financial planning efforts to tighten their belt and mitigate business risks.

As we all know, risks cut across different industries. Fortunately, you can lessen these by predicting possible cash flow challenges before they become a major issue. This is exactly where a cash flow forecast comes in handy. But did you know that these forecasts can do more than just help you anticipate money management challenges? Here are more reasons why your business should prepare a cash flow forecast:

1. It helps you in budgeting.

A cash flow forecast gives you a clearer understanding of how much cash your business owns and how you can use these resources to fund your daily business operations. Managing your business finances through a cash flow forecast also helps you map out the wise use of your money.

2. It showcases your financial viability.

A cash flow forecast is valuable if you are considering a sale of your business or admitting business partners. Since it asserts the financial viability of your business, a cash flow forecast is extremely valuable in proving the worth of your business to your would-be shareholders or purchaser.

3. It measures business performance.

Is your business doing well? A cash flow forecast is vital in measuring business performance. Since these financial statements provide accurate figures for your cash inflows and outflows, you can use it to ensure improvements in business performance.

4. It improves goal-setting initiatives.

At this point, can you name the specific goals that you want your business to focus on? Failing to set your business goals may compromise your business direction. The ideal approach: Use a cash flow forecast to set your targets and have better chances of hitting those targets as accurately as possible.

5. It simplifies your financing options.

When businesses struggle with their cash flow, availing loans becomes essential in keeping your business capital on track. A cash flow forecast helps you determine a) if there is a need for loans as well as b) the frequency of loan repayment.

To say that a cash flow forecast is extremely valuable for your business is an understatement. In a nutshell, you can prepare these financial statements on a monthly or quarterly basis – depending on the phase of your business and its level of stability. The more volatile your business performance is, the more frequent your cash flow forecasts should be.

By closely monitoring the movement of money in your business through a cash flow forecast, you will make more informed business decisions.

Can’t get enough of cash management tips for your business? Click on the button below to download a copy of our FREE cash flow management eBook.


Did you know that keeping yourself swamped with work can strain your productivity and affect your business performance in a negative way? According to a study conducted by the Australian Institute, consistently putting yourself under the pump leads to sustained job stress. This constant pressure costs Australian businesses $12.3 billion per day in lost productivity.

This emphasises the fact that going solo compromises the ideal level of productivity as well as the potential success of your business. Fortunately, you can seek professional advisory services, in the form of a virtual cfo or a virtual management accountant to make things more manageable.

A virtual CFO is a professional bean counter, compliance consultant, and business adviser rolled into one. Although these professionals take on the role of the traditional CFO, there is more to these professionals than meets the eye. You can start discovering these by taking a look at the advantages of hiring one:

Cost efficiency

One of the major reasons why business owners hire a virtual CFO is to cut costs. Since these professionals are not working with you on-site everyday, you can significantly save on personnel and technological resources. Do the math and you’ll easily figure this out.

Staffing flexibility

A factor that is directly linked with the cost reduction benefits of hiring a virtual CFO is the staffing flexibility that it brings to your business. Seeking the services of a virtual CFO gives you access to high-calibre talent right when you need it – during tax season or business and strategic planning.

Enhanced results

A virtual CFO takes great pride in their experiences and proficiencies in handling business accounting functions. Through the services of these professionals, you can easily anticipate better outcomes from your critical business numbers.

Greater Focus

The working arrangement with a virtual CFO varies depending on the requirements of your business. This way, you can easily choose which tasks you want your virtual CFO to focus on. You can focus on the biggest issues for your business in a systemised and structured manner.

Improved cash management

Reviewing profits and putting your revenues to work could be a challenge for first-time entrepreneurs who have just dipped a toe into running their own business. By hiring a virtual CFO, you can rest easy, knowing that your financial resources are being put to good use.

As a small business owner, you constantly have to deal with decision-making processes. But obviously, when your plate is too full and your mind is always occupied, the tendency for miscalculations is very palpable. This is where hiring a virtual CFO comes in handy. When you have a virtual CFO to assist you in making strategic and profitable business financial decisions, you’ll have fewer problems to worry about.

The plus sides of having a virtual CFO are innumerable. Want to explore your options further? Click below to download a FREE copy of our eBook on virtual CFOs.


How much do you know about small businesses in Australia? If you’re readily admitting to a knowledge gap, here are two important facts that you definitely should not miss: First, 300,000 SMEs are established annually in Australia. Secondly, there is a high failure rate of new SMEs due to their financial activities not being managed correctly.

As a small business owner, you are expected to stay on top of all your business activities – your cash flow included. We know that this is not that easy. Fortunately, strategic business advisory services assists you in taking those small steps towards your financial goals. You can start by determining which cash flow mistakes can put you in a potentially bad position. Here are some of them:

1. Neglecting your financial records

Some business owners do not prioritise the upkeep of their financial records. But did you know that neglecting your books can lead to financial forecasting problems? In contrast, if you have updated books, you can warrant a more accurate interpretation of your critical business numbers and where you are positioned at all times.

2. Combining business capital and personal finances

A beginner entrepreneur – especially someone who is struggling with business capital – is very likely to put business and personal resources together. Note, though, that combining these two could make it difficult to keep track of how much money your business actually earns. Not to mention that this also complicates your tax liabilities. Separation between business and personal finances and assets is a key planning matter for any business.

3. Misunderstanding revenue and profits

Whatever you do, do not use revenue and profit interchangeably. Scrupulously checking your cash flow requires having a basic understanding of revenues and profits. Revenue is the money coming in from the sale of your products and services. On the other hand, profit is the revenue you have earned minus your cash outflows. Knowing the difference is vital in setting your business financial targets.

4. Having misguided notions about debt

Not a fan of debt within your business? Think again! Your perspective on debt can turn your business around. Business owners with negative views about debt cannot take advantage of its potentials in expanding business reach and potential growth. So the next time a financing opportunity comes up, be sure to seek advise from your accountant or business advisor before giving a point-blank ‘no’.

5. Doing everything on your own

Accounting, bookkeeping, and tax compliance are business financial processes that you can learn as a business owner. But should you take charge of all of these functions? Taking full responsibility can rob you of the time to focus on your core business activities, possibly affecting your business performance. You wouldn't want to threaten the stability of your business, wouldn't you?

Effectively managing your own business means having a clear grasp of common business financial practices that you should veer away from. This way, you can put your mind at ease, knowing that all your resources are being well taken care of and you are focusing on your most valuable contribution to the business.

Need further assistance in managing your business finances? Virtual CFOs can help! Find out how these professionals can revolutionise your business. Learn all about virtual CFOs with our free eBook. Click below to download your copy.


As you might have figured out by now, you don’t need formal business education to put up your own business. Note, though, that keeping tabs on your business finances is an entirely different matter. If you want your business to run as smoothly as possible, you need to know all that there is to business financial planning. You can start by managing your cash flow. 

At this point, would you say that you have a clear idea on how to ensure the financial stability of your business? Take a look at these tips to get more ideas:

1. Determine your cash flow projections


Use facts to help you make wise and objective decisions about your business finances. This is where a cash flow forecast comes in handy. A cash flow forecast documents the movement of money in your business, empowering you to have a clearer understanding of the ideal business financial planning initiative for your company. Through this document, it will be easier for you to make plans about using your money in the most efficient way possible.


2. Control your business expenses


Keep your business costs to a minimum. Review your business expenses and determine which among these can be reduced or taken out from the budget. Attempting to cut down on fixed costs may be a great challenge but most probably, you’ll get more luck with variable expenses. Make sure the expenses you are cutting down on will not affect the quality of your products or services.  


3. Make your money work for you


Generating more income for your business does not just equate to increasing your marketing efforts. Aside from ensuring that your products and services are being patronised by your customers, putting your money in asset classes that yield a profitable ROI is also ideal. Here’s a great idea: why not try investing in stocks and bonds as part of your business financial planning initiatives? This way, your money earns more value instead of just remaining stagnant.


4. Find ways to increase cash flow


A steady and reliable cash flow is the lifeblood of your business, Work out business finance initiatives to generate more cash for your business. You can consider strengthening your marketing strategies, finding new suppliers or collaborating with investors to increase your cash flow. You can also discuss your options with finance brokering companies to get enough funds for your business expansion.


What does it take to keep your business running smoothly? There are a lot of factors that come into play where the success of your business is concerned. Rest assured, though, that ensuring a healthy cash flow gets you one step ahead.


Need help in improving your cash flow? Click here for a free consultation with our advisers.