2011 should be a better year for investors than 2010 but it won’t be without its disruptions and volatility, says Mr David Bryant, head of Australian Unity Investments (AUI).
“This time last year, any predictions about what the future had to hold were largely guesswork, but it is now possible to come up with a more reliable outlook for markets based on the trajectory that emerged in the second half of 2010.
“One very positive sign is that markets are showing significantly more resilience to shocks and bad news, so any downturns are shallower than a year ago, and the upward movement is more sustained.
“For instance, when Greece required a bail-out in the middle of the year, the reaction from markets and investors was severe, but the crisis in Ireland at the end of the year did not trigger nearly the same reaction. It’s not that issues are diminishing, but rather that any fears of contagion are falling away,” Mr Bryant said.
He said that generally the Australian economy and market is in good shape.
“The economy is growing well, we have good prudential regulation, and we are in an excellent position to continue to benefit from China’s growth with our resource sector.
“This doesn’t mean we are completely free of problems. Perhaps the main concern is that we need China to continue to work, and continue to grow its huge domestic market, in order to stay healthy. To some extent, China does need the rest of the world to work if it is to continue growing, so it would help to see the US and Eurozone improve but this is not essential for China to continue some growth.
“In my view, the US will recover earlier than Europe, where things are complicated by the need to coordinate economies and currencies.
“There are good opportunities for those considering investing overseas and the Australian dollar is an important factor to take into account. It’s unlikely to stay at the current highs so investors should go unhedged into international investments.
“Investors should remember that foreign exchange does fluctuate – it’s not that many years ago that the Australian dollar was worth a little over 50 US cents,” he said.
Mr Bryant said that he believes property also has some particularly good opportunities for investors as the market overall is at the bottom of its cycle.
“While this doesn’t necessarily mean the property market is about to boom, it does mean that valuations are low and there is plenty of room for improvement.
“Property yields are very good and now compare favourably to bank deposit rates.”
In the fixed income area, Mr Bryant said that while interest rates may go up to five percent, the Reserve Bank will struggle to go beyond that without more certainty around fundamentals, including how the US is tracking.
“Currently, interest rates are at a neutral setting and I think are likely to stay there in the short term,” he said.
Overall, Mr Bryant said that asset classes will start working on their own merits from now on, rather than some sectors being influenced – for good or bad – by external events such as stimulus packages.
“This means we won’t see the wild swings of the past two or so years, which will allow investors to have much more confidence in markets,” he said.
Australian Unity Investments is the funds management arm of financial services, health and retirement living services provider Australian Unity. It has more than $12.4 billion in funds under management (as at 31 December 2010). Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other organisations with specialist expertise.
For more information please contact:
David Bryant – 03 8682 4401