Over the last few weeks, Tina has been creeping into my news feed. Or rather TINA – There Is No Alternative.
I remember TINA from Margaret Thatcher’s 1980s Britain. Maggie used it often when talking about the market economy. There Is No Alternative to neo-liberalism. Debate over.
The expression has that black and white feel politicians love.
German Chancellor Angela Merkel used “alternativlos” – literally alternative-less – to defend her response to the European sovereign debt crisis in 2010. (It was awarded Germany’s “inappropriate word of the year” for 2010.)
And three years later UK Prime Minister David Cameron resurrected TINA – this time about the UK’s austerity measures.
But the TINA being evoked by some investment commentators is a different one. ‘There is no alternative’ is being used to describe a situation where people are propelled to invest in equities because other investments offer worse returns.
You can see the rationale.
What do you do with spare money when you can’t afford the deposit on a house because prices are crazy, or when an uncertain economic future means banks are more reluctant to lend money than they used to be. What happens when unprecedented low interest rates mean traditional safe havens like cash and treasury bonds can actually be taking money from savers, when you take tax and inflation into account.
What happens when you can’t even spend your money on an overseas trip…
You buy shares.
Online investment platform Sharesies recorded 227 percent user growth in 2020, according to co-founder and 3EO Leighton Roberts.
Of the company’s 260,000 customers, 71 percent are under 40, Roberts says, and the word “Sharesies” emerged as one of the top 10 Google searches for 2020.
Same buoyancy at Kiwi Wealth’s digital investment platform Hatch, where investors buy into stocks on the main US exchanges.
Sign-ups almost doubled over lockdown, general manager Kristen Lunman says, taking the company from 25,000 customers to 45,000. Now it’s 70,000, with the first working week in January 2021 the company’s best ever.
Hatch customers’ daily trading has more than tripled this year from average 2020 levels.
Meanwhile, a survey in late 2020 from equity crowdfunder Snowball Effect found people are also optimistic about private equity investment.
Chief executive Simeon Burnett says the company launched some debt products during lockdown, figuring people might be keener on the higher security of debt instruments. But no, investors wanted the equity offerings, he said.
Snowball Effect closed half a dozen offers in December, and is hoping to see a 30-40 percent increase in business next year.
Unexpected exuberance
Equity investors have largely been rewarded over the last year. After a Covid-related slump in March, stock exchanges – particularly those in the US and New Zealand – have made a remarkable recovery. The NZX 50 and S&P 500 indexes are trading above their levels this time last year.
TINA is one factor. Early in the pandemic, investors dumped shares and moved their money to traditional safe havens like cash and treasury bonds. But central banks cutting interest rates and the fall in bond yields have made these options less attractive.
Meanwhile in New Zealand, digital platforms like Sharesies and Hatch, with easy sign-up and low minimum investments, have seen new investors buying a piece of listed companies.
There are some promising corporate and economic fundamentals too, says long-time financial advisor and author Martin Hawes, who chairs the investment committee of the Summer KiwiSaver scheme.
Any company with debt is benefitting from the low interest rates, he says, and there’s some optimism about the global economy going forward – including a pick-up in manufacturing, and the fact incoming US president Joe Biden is likely to mend breaches with China and spend more on stimulus measures.
“Looking beyond 2021 I’m optimistic. When there have been severe downturns, there has often been a good bounce coming out. For example, the Roaring 20s followed the flu pandemic and the World War.
“After lockdown people spent money like there was no tomorrow.”
And of course, people spending money is great for companies which make stuff, and that’s good for the stock market.
Hawes has shifted his personal investment portfolio allocation from his more usual position of having 50 percent in shares and listed properties, and 50 percent in cash and fixed interest. Now it’s 55:45, and he might go 60:40.
But no further, he says.
The idea people might decide there really is “No alternative to equities” has Hawes worried.
“I’m not mad about TINA. It has connotations of people putting everything in shares. That’s too risky.
“I argue that even if they are low returning, cash and term deposits have a place in your portfolio.”
Overpriced equities
Almost exactly a year ago, in those “what is this Covid thing?” days of early January 2020, The Guardian’s UK money editor wrote an article entitled “Is this the worst time ever to invest?” Shares are “shockingly expensive”, he said.
“The valuations on US equities are eye-watering. If you judge company share prices in relation to the profits they make, then only on two other occasions in history have Wall Street stocks been this high: 1929 and 1999. No prizes for knowing what happened next.”
Guess what? US equities are considerably higher now than they were in January 2020.
Hawes worries about new investors loading up with shares and then getting slammed if there’s a slump. Say vaccines turn out not to be as effective as people hope, or the global recovery is slower than expected, or interest rates rise unexpectedly.
“Everyone has a parent, grandparent, or uncle saying ‘Don’t invest in shares’.”
– Martin Hawes
“All the new people get bitten and then they flee the market and never come back.”
It happened in the 1987 sharemarket crash, Hawes says. “Everyone has a parent, grandparent, or uncle saying ‘Don’t invest in shares.’ The best thing is for people to stay diversified.”
Milford portfolio manager Mark Riggall agrees. The trouble with shares, he says, is they can be volatile. Investors get excited when things go well and despair when they don’t. They forget investing equities is best with a longer term horizon.
The mega tech stocks like Apple, Amazon, Facebook, Google and Netflix, which did so well last year, might struggle this year if the world returns more to a post-Covid vaccine normality and people start looking at other ways to spend their money, Riggall says.
Or they might not. Timing the market is very difficult, even when that’s your job.
“Our advice is you have to look at your investment goals and your investment horizon. If you are looking at a minimum three-year investment horizon, more likely five years or longer, we think a bit more invested in shares is warranted. Certainly shares are more attractive than they were even a year ago.”
Which shares?
“We think income stocks – boring utility companies, some boring property trusts, companies where there is a healthy dividend yield – are likely to be sought-after in the medium term,” Riggall says.
“A dividend yield of 3, 4 or 5 percent is going to be attractive compared to having money in the bank.”
Sounds a bit like there is no alternative to equities, I mention to Hawes.
Maybe it depends on your definition of TINA, he retorts. “There is no alternative to having some shares. But I don’t think people should go wholesale from bank deposits to shares.”
It’s not black and white.
We are talking markets not politics.
