Market Commentaryby Chris Limberg on Mar 15, 2012
The Australian sharemarket rose for the quarter closing at 4,335. The trend during the quarter saw a decrease in volatility however there have been no strong economic signals to drive the market. The market continues to be affected by the high level of political malaise.
This quarter saw growing activity in the hybrid notes market with companies such as ANZ, Tabcorp, Westpac and AGL among the list of organisations issuing debt to access funds from the market. These issues have been attractively priced for investors and generally oversubscribed. The appeal to investors is the ongoing yield from 7.15% p.a. on ANZ notes to AGL providing regular coupons of 8.25% p.a.
These notes while they have an element of risk due to the fact they are classified as listed debt on the companies book will provide a floating rate over the RBA cash rate and are providing stronger returns than current term deposit rates.
The Australian dollar remains strong against foreign currencies, this coupled with Australia's high interest rates compared to the rest of the world is holding back our domestic economy. A reduction in interest rates will assist growth in the Australian economy.
There is a possible investment opportunity available in US dollar assets due to the high Australian dollar which could weaken if interest rates are reduced in Australia. This may be explored over the coming months.
The last 3 months has seen better news out of Europe. The European central bank has been supportive which is providing some stability and stemming short term liquidity crises. This has been positive for global markets and Australian banks.
Italy and Spain interest rates on their debt have significantly increased in the quarter and now Greece has taken a back seat to news with Spain in particular being the cause for future concern.
Growth remains strong in China even though the government has been slowing the economy. Between January and March Chinese GDP grew 8.1%, which is substantially less than its 8.9% expansion in the previous quarter of 2011. This was the lowest rate of growth for China since the first quarter 2009.
China continues to be a driving force in the consumption of Australian commodities however with growth slowing in China it is possible that we will see a shift from construction commodities i.e. iron ore and steel production to consumption commodities such as copper as the Chinese look to replicate the consumer lifestyle of the western world.
The US market is showing signs of improvement with steadily recovering unemployment. Housing appeared to have bottomed with the number of sales and prices trending upward. US corporates look very strong which is encouraging and could lead to share buy backs or increased dividend payouts. The Australian economy however is more exposed to China rather than a recovering US economy which partly explains the Australian economy underperforming the US economy.
Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.