Future Fund tap-dancing through market storms. The Future Fund got it mostly right in the year to June — earning a return of more than 15% (which out-performed most local fund managers and listed investment companies), and its more than $117 billion in assets at June 30 is now almost double the $60 billion it started with eight or so years ago (it has gains of $56.7 billion). But what was impressive was the way it went about revamping its portfolio during the year to take account of what its managers saw happening in the markets, and what lay ahead. It boosted cash holdings (a defensive move) by $5 billion in the June quarter — a wise move given the way the sell-off started in China in mid-June and has continued into the current year (as we have seen this week). That cash was boosted by cutting total exposure to all equities from 50.5% at June 30, 2014 (when the fund was $101 billion) to 44.6% of the $117 million in assets at June 30 this year.

The absolute holdings in Australian shares fell from $9.57 billion a year ago to $7.96 billion at June 30 this year, while total holdings of developed market equities (in the US, Europe, Japan, etc), dropped to $20.63 billion from $23.45 billion a year earlier. Holdings in emerging markets listed shares though rose to $11.03 billion (despite the big sell-off in the sector this year), while private equity investments jumped by 50% to $12.61 billion from $8.85 billion. All this without a glowing profile in The Australian Financial Review, or a laudatory back slap from The Australian. But watch the Peter Costello cheer squad try some retrospective hagiography about his performance as Fund chair. — Glenn Dyer

Happy holiday. It’s “we won World War II day” in China today and tomorrow when the Communist Party gives the country and the world a two-day jingoistic celebration of the 70th anniversary of the end of the Second World War. And as part of celebrations, the country will shut down today and tomorrow (those skies in Beijing are so blue now that industry has been shut for the best part of a fortnight). As part of the festivities, Chinese sharemarkets will also be shut, and ain’t that a timely holiday after three days of mixed trading that heralded small falls, but only after some suspicious buying late in the day in big cap, state-owned companies such as banks and oil groups which helped reverse big losses? So no guidance from China for the next two days — should ease tensions elsewhere in the world. But towards the end of next week we start getting the August economic data from China. Strap your seat belts … again. — Glenn Dyer

NZ saved … by a cow, not a flag? For the second auction in a row, global dairy prices have jumped sharply. The auction is conducted every fortnight by the huge Fonterra co-op, the world’s biggest dairy exporter. The auction this week triggered a rise of 10.9% in the average price of products, led by a 12.1% jump in whole milk powder prices. That was after a surprise 14% leap in the average price at the August 18 auction. That means prices have regained some of the 60% drop in the past year to 18 months. Dairy products account for around a quarter of NZ’s exports, and despite the recovery in the global price, Fonterra has yet to look at lifting the price it pays NZ farmers. That has been cut sharply in recent months to a level where economists say many of the country’s 11,000 or so dairy farmers are losing money. The faltering dairy sector has been flagged as a concern by the Reserve Bank of NZ in successive financial stability reports — Kiwi dairy farmers have taken on billions of dollars of debt and face problems in servicing their loans. The NZ central bank meets a week today to look at interest rates, which have already been cut twice in the past three months to 3%. Another trim to 2.75% wouldn’t surprise, even though there’s a housing bubblette in Auckland. — Glenn Dyer

Another one bites the dust. The shakeout in the resources sector continues to find new victims. Overnight WDS, a Brisbane-based mining services contractor and engineer, went into voluntary administration. A week ago the company requested its shares be suspended because of contractual issues and other problems. When the shares were suspended, they were trading at 10.5 cents, down sharply from the most recent high of more than $1.80 a share on April 1, 2014. The company joins the likes of Forge Group in collapsing as the resources investment boom fades. Other companies in the sector to feel the pain include Titan, Boart Longyear, WorleyParsons, ALS, UGL, Macmahon Holdings and Downer EDI. Of course, these groups remain alive and have escaped the fate of Forge and WDS — for now. — Glenn Dyer

Peter Fray

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