Throughout the sea of people claiming to be ‘expert economists’, there is one in the financial industry that truly stands out. Dr. Shane Oliver. Being part of not only AMP, but the finance sector as a whole for almost 30 years, he is revered and respected by peers and fellow chief economists around the world. Seen and quoted often in leading newspapers such as The Age, The Herald Sun, and many other industry based magazines; Shane has built up somewhat of a cult following and his advice is not only trusted but diverse as well. From the smallest of businesses owners and working class citizens, to multinational corporations and large income earners, his ability to relate is considered paragon compared to many other Chief Economists around the world. Below is his latest Q&A that delves into the deep issues about the trends within our current markets and what, as an investor, we can do to keep up with its expeditious nature.
Towards more positive trends
Recovery and growth remain a key focus for the global economy, and there’s good news for the Australian economy too. Dr Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, talks about key market movements and economic developments.
What type of investment solutions could hold investor interest in 2013?
Although in hindsight it made sense to have invested in term deposits and bonds over the past few years of equity market volatility, now that the global economy is in a recovery mode, it may be worth investors reconsidering this approach. The yields on term deposits are getting lower and may fall below 4% depending on interest rate cuts. Bonds too are not performing particularly well, because of record low yields resulting in low returns. There is also the risk that yields rise as a result of investors moving out of bonds, leading to the loss of capital.
Investing in assets such as property and shares could be a way to avoid such risks. While it appears that Australian homebuyers are cautious in taking on more debt, yields from residential property continue to improve. Shares too have come back into play as an attractive asset, with grossed up dividend yields of around 5.5 – 6% and capital growth potential as the global growth outlook continues to improve.
Is there a danger that the Euro will break up or that the European Union will not be able to rise up to the economic challenges of its member states?
This was a matter of great concern over the last three years, but events from last year have helped to calm such fears. The European Union is slowly but surely getting on top of their financial problems. The European Central Bank (ECB) provided cheap financing to European banks, which restored market confidence inEurope’s financial system.
Strong words of support from the President of the ECB didn’t go to waste either; speaking at an investors’ conference in London mid-last year, he defended the then embattled currency, saying, “The ECB is ready to do whatever it takes to preserve the euro.” Such a strong commitment, backed by financial support, points to a steadily improving situation inEurope. And in the longer term, say over the next five to 10 years, we will be looking at a much stronger Eurozone and a stable Euro.
International lenders appear to be dealing with a number of lawsuits, fines and investigations. What impact does this have on international markets?
It’s true that there were questionable activities taking place at various financial institutions prior to and during the Global Financial Crisis, eroding public confidence. The LIBOR scandal in particular was quite disturbing – LIBOR refers to the London Interbank Offered Rate, a benchmark interest rate for financial markets, which was manipulated to make more profits and to increase creditworthiness. TheUSJustice Department has also now brought a lawsuit against a credit ratings agency.
Overall, though these events should be seen as typical after-effects of a financial crisis, their impact on financial markets is not enough to cause a serious disruption to market movements.
Growth in China appears to have stabilised. What’s the impact on the Australian economy?
In a word, the impact is positive. Last year’s fears of a Chinese hard landing (which results from a government’s effort to slow down growth and control inflation by tightening monetary policy, and fears that this would expose imbalances in the economy regarding debt and the housing market) have subsided, as growth indicators have stabilised and strengthened. In particular, the Chinese property market has proven to be far more resilient than feared. Chinese commodity prices have also stabilised.
All this helps to take some pressure off the Australian economy, which is experiencing a slowdown of the mining investment boom. A stable Chinese economy means our export prices and export demand remain solid. In the meantime, lower interest rates should enable the Australian economy to become better balanced to the extent that they encourage a return to reasonable growth in areas such as housing, retail and non-mining construction.
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What you need to know
This document was prepared by AMP Capital Investors Limited (ABN 59 001 777 591, AFSL No 232497). This document, unless otherwise specified, is current at Tuesday, 12 February 2013 and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after that date. While every care has been taken in the preparation of this document, AMP Capital Investors Limited makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance.
This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.