If we look at previous incidents of viral outbreaks, such as SARS in 2003 and H1N1 (swine flu) in 2009, short-term corrections were within the range of 5% to 15%. These corrections were followed by strong rebounds. The consensus view is that global growth will be down in the first quarter of the year as a result of COVID-2019 with the key variable being how long the threat of the virus persists.

While history is a useful guide in this case, it must be said that the effect of this epidemic is likely to be greater given China’s dominant presence in the global economy, given the faster spread of the disease and the measures taken to combat it. The extended closure of Chinese industry, restrictions on people movement, disrupted supply chains, declines in key commodity prices, bans on Chinese travel and the flow-on effect to confidence will severely hamper growth in China and the countries and regions most heavily reliant on China.

While at the time of the SARS outbreak China accounted for around 9.0% of global output on a PPP basis, it now accounts for 19%, and this proportion is only likely to increase in coming years, according to the IMF. China accounts for 18% of global tourism spending (up from 4.0% in 2008) while overall tourism (domestic and global) spending accounts for more than 10.0% of Chinese GDP and has been contributing almost 1.5% to annual GDP growth. To place China’s emergence on the global stage into perspective, in 2003 there were 20 million Chinese overseas visits and in 2018, 150 million. The Chinese economy accounted for about 30% of global growth in 2019. So, a drop in Chinese GDP growth to 5.0% for the year, assuming the virus is contained within a short period, would detract 0.2–0.3% from global growth.

China now accounts for around 19% of global output

Source: IMF, Lonsec

From an Australian equities perspective, we are likely to see earnings outlook downgrades across a number of sectors (based on Lonsec equities research), at a time of elevated valuations and a sub-par growth outlook. While earnings across the Healthcare, Consumer Staples and Infrastructure sectors should be relatively immune to recent events, 2020 earnings estimates for the Resources (Energy, Iron Ore and Copper), Tourism/Travel and Consumer Discretionary sectors are likely to see significant one-off earnings revisions, capturing the impact of COVID-2019 outbreak and the recent bushfires across Australia. However, such downgrades are unlikely to impact the long-term investment thesis for most companies and should be regarded as short-term headwinds, reflecting a series of one-off unfortunate events.

While there is a high degree of uncertainty regarding the COVID-2019 outbreak, research indicates that this event could pose a long “tail risk” for global markets should the outbreak get out of hand. In other words, it could go on for a while. These factors make it a challenging period for investors, where factors other than fundamentals are having a material impact on the trajectory of markets. In such an environment, balanced portfolio construction is critical to insulating your portfolio. The proof in balance portfolio construction has been reflected in the stellar returns from both domestic and international fixed income securities over the last 18 to 24 months.

If you feel concerned by the current situation we encourage you to talk with an advisor sooner rather than later.

Source Information: Lonsec Group

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While interest rates remain at historically low levels in many parts of the world, including Australia, thousands of mortgage holders have enjoyed lower repayments; but interest rate movements mean different things to different people.

Aside from mortgages, low interest rates have a much broader application—they also flow through into personal and investment loans, credit cards and various types of business financing. On the flip side, investors have seen returns on interest-bearing bank accounts and term deposits follow suit and understandably do not celebrate with every rate cut.

Across the economy generally, a low interest rate environment often goes hand-in-hand with slower economic growth, uncertain job prospects and lower asset prices.

So, depending on which category you fit into, here are a few implications worth considering in your approach to dealing with interest rates:

• Homeowners: With variable rates remaining low do you use this as an opportunity to build a buffer against rates when they eventually turn around? Or are there other more pressing items that your spare cash could be directed towards, such as credit cards or a car loan? Another issue to consider is your future housing preference. If you would like to renovate or upgrade your home, is now a good time to do this with prices generally stable and tradesmen more likely to return your phone calls? 
• Investors: Whether your preference is shares, property or another asset class, this may be a good time to consider starting a long-term growth strategy. Given that dividend yields and rents may have changed in the past couple of years, it's worth another look to determine if potential investments are likely to be positively or negatively geared.
• Business owners: Overdrafts, car leasing and other business loans may need a good review. In particular, any strategy to reduce your debt should be revisited. You could take advantage of lower interest offers with another lender, but make sure you balance the potential savings against any costs associated with moving your business to a new bank.
• Deposit holders: Dwindling returns on cash may make you feel like there would be little difference if you put it under the mattress. There's bound to be plenty of apparent alternatives to give your returns a boost but it's critical to read the fine print and understand what you're investing in. The adage of higher returns meaning higher risk holds true, so first make sure your ability to manage that risk is properly addressed.

Interest rates will not stay this low forever – and this will be good for some and not others. Now is a great time to think about how you can use the current situation to your advantage. 
Call (02) 4926 2300 or email us. 

To discuss current interest rates and you can take advantage of the current low rates, please call our team of accountants and financial planners at Leenane Templeton. 

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The 2015 investment landscape could resemble the plot of The Hunger Games, where investors face a changing and unexpected environment that requires multiple talents and smarts to emerge victorious. Expectations for 2015 are for global share market returns of 5 – 10 per cent, but there could be some volatility ahead.

At the beginning of 2015, global cash rates were close to zero and bond rates both internationally and in Australia were close to multi-decade lows. The Australian share market delivered flat returns over 2014 (a price return of just +1 per cent), and at the beginning of 2015, stood at levels which were no higher than 2006. With patchy global economic growth and with Australia in particular facing a painful adjustment phase as the resources boom winds down, there’s no shortage of challenges to tackle.

What will it take to ‘win’ in 2015?

1. Be prepared to adapt quickly to changing market conditions

“May the odds be ever in your favour” is the popular catchcry from The Hunger Games, highlighting the element of chance. This saying may provide little comfort, but a lot can be done to tilt opportunities in your favour.

However, the range of likely returns around those forecasts (the ‘standard deviation of return’) is large: plus or minus 20 per cent for shares, versus a wellbehaved plus or minus 5 per cent for high-yield debt.

2. If you choose freedom, you must accept the risk

Your risk profile is important in determining whether you are able to access wellvalued assets that may take time to pay off, or whether you need to be more prudent with your investment choices.

As we move further into 2015, we observe stretched global share valuations, a US Federal Reserve system preparing for higher official interest rates, pressure in commodity markets in some emerging economies and a continued winding down of the resources boom that has underwritten the Australian economy for so many years. Be mindful of the investment risks you take and maintain a long-term perspective of your goals and risk tolerance.

3. You may need to search further to gain returns

In 2015, the local Australian economy will have to deal with weaker commodity prices and collapsing resource capital spending – problems potentially compounded by a downturn in the housing cycle. Investors looking to gain exposure to economies that are in a more dynamic phase of the economic cycle will therefore need to consider markets in the Asia-Pacific region, within the Northern Hemisphere developed world, and in the emerging world more generally.

4. Be alert for opportunities

In an environment where nothing is as it seems, the lead character in The Hunger Games, Katniss, remains on guard to access valuable supplies. Likewise, given the unpredictable investment landscape, one of the lessons of 2014 was to stay diversified across a full range of asset classes. We expect more of the same unpredictability in 2015. In this environment, active management becomes especially important – investors must have wide-ranging sources of opportunities, an eye for making timely decisions and a nimble process.

The bottom line: believe that adversity offers an opportunity to do your best.

Even if the financial markets resemble The Hunger Games in 2015, it’s possible for investors to weather twists and turns by having a diversified investment mix and making wise choices based on their long-term goals.

Source: Russell

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For more information on the outlook for investment markets, speak to your financial planner.

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The 2015 Budget made sweeping changes for individual taxpayers and families with its focus on improving the economy.

Car expense deductions

The Budget has introduced new modernised methods for calculating work-related car expense deductions from the 2015/16 income year. The ‘12 per cent of original value method’ and the ‘one-third of actual expenses method,’ which are used by less than 2 per cent of those who claim work-related car expenses will be removed.

The ‘cents per kilometre method’ will be modernised, allowing workers to claim a deduction for each kilometre driven in the car for work based on a schedule of typical costs. Under the new regime, one rate will be set at 66 cents per kilometre to apply for all motor vehicles. Taxpayers can continue using the ‘logbook’ method of calculating expenses if they do not want to use the cents-per-kilometre approach. These changes will adjust car expense deductions to align with the average cost of running a car.

Pensioners

The plan to index the pension to the Consumer Price Index has been axed. Instead, the Budget will be making the savings from people with substantial private assets.

Ageing workers

A flexible wage subsidy will give older Australians approaching retirement an incentive to remain in the workforce with the possibility of receiving a bonus later. It will also shorten the length of time Australians over the age of 50 have to wait on income support or the pension before they qualify for job incentives.

Amendments to the new Restart program will offer older workers incentives for training to further assist them with retraining for a job and prevent them from falling back on unemployment benefits or pensions.

In addition, employers who hire job seekers under the age of 30 or workers aged 50 or older will share in a redesigned national wage subsidy pool from 1 November 2015. Eligible employers will be granted a subsidy of up to $6,500 for hiring a job seeker under the age of 30, an indigenous job seeker, a parent returning to the workforce, or a long-term unemployed job seeker. They can also receive up to $10,000 under the Restart program for hiring workers aged 50 or older.

Families

The childcare scheme has received a major overhaul to support low income families. Families with access to maternity leave through work will no longer receive government assistance in the form of the existing Parental Leave Pay (PLP) scheme from 1 July 2016. This measure will prevent families from double dipping into both schemes.

Under the new proposals, both parents must do at least eight hours a fortnight of work, training or study to qualify for any childcare support. Families earning up to $65,000 will receive 85 per cent off childcare fees, while stay-at-home parents with a family income over $65,000 will no longer secure childcare subsidies.

A two-year nanny trial starting on 1 January 2016 will assist the parents of approximately 10,000 children, especially those working for emergency services or living in regional areas, without access to regular childcare services.

Rural Australia

Farmers can continue the Drought Concessional Loan Scheme for another year. Farmers will also be able to claim fences and new water storage as tax write-offs.

Call (02) 4926 2300 or email us.

To discuss the 2015 budget and how it will affect you, please do not hesitate to contact the expert and friendly team here at Leenane Templeton.

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In Australia, the Reserve Bank of Australia (RBA) left cash rates on hold at 2.5 per cent throughout the third quarter of 2014. In July, RBA Governor Stevens enhanced their efforts to talk the currency downward. Australia’s terms of trade worsened as the drop in export prices exceeded the drop in import prices. August saw the Governor discuss currency intervention, noting that it was an option on the table, despite the fresh talk of intervention from the head of the RBA, solid domestic data kept AUD well supported throughout the month. However, disappointing reads on the Chinese economy, concerns over the current global geopolitical climate and improving US domestic data in September, saw a dramatic fall in the AUD of -6.4 per cent.
 

The European Central Bank (ECB) left their key interest rates unchanged through July and August, however President Draghi increased the likelihood of additional ECB policy easing at the August FOMC meeting, acknowledging the sharp drop in inflation expectations. Market commentators are concerned with the economic impacts of geopolitical tensions in Ukraine on the Euro-area and the likelihood of downside risk to growth. At the September meeting the ECB cut all the key rates by 10 basis points. They also announced a purchase of asset backed securities and covered bonds, with details to come in October.
 

The Bank of Japan (BoJ) left its monetary policy stance unchanged at their July meeting, maintaining their monetary policy statement’s positive outlook for both growth and prices. Monetary policy stance remained unchanged through August, but a larger-than-expected drop in GDP growth in response to the consumption tax hike and a further widening in the trade deficit increased pressure on the BoJ to revise its outlook. By September slowing domestic data prompted concern around further BoJ easing, and expectations of impending Government Pension Investment Fund reform, contributed to a weaker JPY which tested levels not seen since 2008.
 

Source: BlackRock
 

Call (02) 4926 2300 or email us here at Leenane Templeton.
 

Speak to our award winning financial planning team today to discuss this economic update further as well as investment options.

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The Australian dollar has been accused of inflicting all sorts of economic ills as it traded above US$1 for most of the past three years.

People would be forgiven then for thinking that the dollar’s drop from its post-float record high of US$1.10 in 2011 to below 90 US cents will be a big relief. Alas, it’s not so simple. As with most things economic, there are pluses and minuses whatever the value of the Australian dollar. Those who whinged about the “overvalued” Australian dollar crushing exports overlooked its benefits. They may well be the ones who moan loudest about a falling dollar. One upshot of a declining dollar is that it reinforces one of the most basic principles of investing – diversifying.

There are two main benefits of a mighty dollar. The first is that a higher currency, in effect, means that every Australian has had a pay rise. For a stronger dollar allows us to buy more imports. This is the mechanism by which all Australians benefited from the mining boom. The second benefit is that a rising currency reduces inflationary pressures as the prices of imports decline in Australian dollars. That allows the Reserve Bank of Australia to set interest rates at a lower level than otherwise.

In theory, a lower dollar helps Australian exporters (and adds to output) because our goods are cheaper for foreigners. This is the break exporters have been pleading for, even if in practice exporting is more complicated than just hoping the currency drops a bit.

We may not want our dollar to fall too far too fast, however, as side effects emerge. These disadvantages are, in fact, the opposite of the advantages of a rising dollar. Inflation could emerge as a threat if the dollar slumps too much. That would mean higher interest rates. Ouch for those with home loans. Some businesses might scrap plans to invest, thus lowering employment prospects.

Bad as that might be for many, the big hit for all of us from a lower dollar is that we have effectively just had a pay cut as import prices go up.

This hit to living standards from a declining Australian dollar forms one of the most basic cases for why Australians should invest in foreign assets such as equities. If your portfolio only holds Australian assets, your ability to purchase imports drops in line with the dollar’s decline. If you own some foreign assets, however, the value of these foreign investments rises in Australian-dollar terms when our dollar drops. This mechanism compensates, to some extent, for your reduced ability to buy imports. In more technical terms, it’s called diversifying currency risk.

Our award winning and professional team are at hand to discuss any financial planning and economy questions you may have.
Call (02) 4926 2300 or email us.

Disclaimer

If you wish to discuss the benefits of a low and high Australian dollar further, please do not hesitate to contact Leenane Templeton.

Financial information comes from Bloomberg unless stated otherwise.
Source: Fidelity, May 2014

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The amateur worrier spends too much time worrying about things that are likely to happen. The true professional worries about the unlikely events that can be really disruptive to our plans. It is the unexpected that can cause the most harm.
 

For instance, your professional worrier is not concerned about the possibility of a rise in interest rates or a share market correction. These issues might slow the economy and may even bring on a mild recession but we have lived through recessions and market crashes before. The portfolios we recommend are built to withstand economic bumps.
 

A professional worrier considers much bigger issues such as a major economic depression. We worry about how globalisation is increasing the correlation between global markets so that the diversification of our portfolios is less effective.
 

The point of worrying is to see where the world is changing. Change means we may need to alter our recommendations or take advantages of new opportunities.
 

A professional worrier has to do just the right amount of worrying. If you spend too much of your time worrying you may never invest at all. The pessimist focuses only on doom and gloom. They worry too much and leave their money in cash where inflation and taxes eat into their returns.
 

At the other extreme, there are the out-and-out optimists who don’t worry enough. They can be unabashed bulls chasing the latest investment fad. History is littered with failed fads.
 

A professional worrier must be a cautious optimist. We believe you must be invested if you are going to achieve above-average returns. We know that creating portfolios based solely on historical data is not enough because history rarely repeats itself. Chasing a few winners is risky because you may get exceptional returns one year followed by big losses in following years. We know the enemy of compounding is losing – better to get consistent returns year after year.
 

Our financial planners are at hand to discuss this article and any financial planning matters you may have.
Call (02) 4926 2300 or email us.
 

Disclaimer.
 

Excuse us – we must get back to worrying for a living now.

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The Australian economy remains in very good shape, both in the context of its own historical performance and when compared to other developed economies. Very few developed nations can match Australia’s combination of vital economic statistics: low unemployment (5.6%), solid credit rating (AAA rating), low government debt/GDP, low inflation (2.4%), solid economic growth rate (3.1%) and strong relationships with global economic powerhouses. We expect to see reasonably strong GDP growth in the domestic economy driven by export growth and a gradual recovery in consumer demand in 2014. Interest rates remain at historically low levels and the Reserve Bank of Australia has shown little inclination towards a tightening of monetary conditions in the short to medium term.
 

State and federal governments are expected to take advantage of the low interest rate environment to embark on a number of infrastructure projects. This, along with productivity improvements as corporates maximise operating leverage, will support employment growth stability.
 

Economy in transition
 

The stability of the Australian economy is dependent on a transition from mining capex led growth to an increase in domestic consumption. And while the transition is unlikely to be orderly, we believe all the necessary ingredients are in place for a gradual lift in the non-mining economy.
 

Australia’s prosperity is not about resources alone. The services industry continues to grow in Australia in sectors such as tourism and financial services, while manufacturing and agriculture still make a meaningful contribution to GDP as Australia embarks on niche products and value add production lines. Despite Australia having likely witnessed the peak in mining capex, bulk commodity and LNG exports are forecast to grow significantly in 2014 pushing the balance of payments into surplus. Retail sales are showing signs of improvement from a fifty year trend low with the 2013 Christmas period expected to be very strong.
 

Contributing to the improved retail outlook has been the increase in household wealth. The savings rate remains above historical averages. Combined with an average 10 per cent increase in house prices, there is a strong ‘wealth effect’ for Australian households with significant pent-up demand. The very high savings rate in Australia is likely to fall, funding an improvement in discretionary spending.
 

China is now the third largest source of inbound tourists to Australia and increasingly a significant investor in the Australian housing and commercial property market. The falling Australian dollar will see this trend strengthen and also encourage domestic travellers to holiday within Australia. A substitution of domestic for international tourism will also provide a fillip for the non-mining economy.
 

Australian equities for income
 

After a strong 2013, we are still positive on the outlook for Australian equities in 2014. We believe the market is still attractively valued given a price-to-earnings ratio of 14.7x which is around the historical average. The dividend yield of the market also remains highly attractive versus other asset classes with a gross franked yield of 6.2 per cent, significantly better than cash (2.6 per cent) and bonds (4.3 per cent). We expect to see continued improvement in market earnings revisions and growth as indicators for world economic growth are strong into 2014 and the domestic benefits of lower interest rates and Australian dollar flow from house prices to construction to broader domestic activity. We view the tapering of quantitative easing as confirmation of a lower macro risk environment which will see higher returns from higher beta, or more cyclical stocks, that have not been rewarded in the last few years of high uncertainty, especially in Australia. Australian equities as a global source of income wwill remain a very strong theme. Income will be a large percentage of total return in 2014 with high quality companies with minimal income risk a key focus for the income portfolios.
 

If you would like to discuss the market further or any other investment and financial planning matters, please do not hesitate to contact our professional and award winning team.
 

Source: Legg Mason, February 2014
 

Disclaimer
 

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However, it is not clear whether the recovery is sustainable and structural problems remain hidden below the surface.

Global growth forecasts have continually been revised down during 2013, with the IMF recently reducing its 2013 growth forecast to 2.9% from 3.2%. A new trend of slowing growth in emerging economies and recovering growth in developed economies has emerged.

Despite the global slowdown, there is growing optimism that the US is gaining momentum and that Europe is showing the first signs of recovery. In addition it seems China has stopped slowing and has stabilised at around 7.5% growth. Indeed, it is expected that emerging economies will soon benefit from a recovery in the developed world and hence global growth should rebound in 2014 to around 3.6%, according to IMF forecasts.

Structural issues

Despite increased momentum leading into 2014, there remains structural problems in each region.

In the US, the recovery is patchy and requires extraordinary monetary stimulus from the US Federal Reserve (the Fed) to keep interest rates very low and the USD weak. The tricky part for the Fed will be exiting this program. We have already seen markets ‘front-running’ the Fed when it indicated mid-year that it was considering tapering its bond purchasing program. Bond yields rose aggressively, the USD rallied and capital began to flow out of emerging markets and back into the US. The Fed seemed to be alarmed at the sharp market reaction and subsequently delayed plans to taper in September 2013.

In addition, the issue of reducing the US budget deficit and public debt without harming economic growth remains a divisive issue for Congress. The public debt has grown to US$16.7bn, or 100% of GDP, while the budget deficit is around US$650bn, or 4% of GDP. To be fair, the budget deficit is the lowest deficit in 5 years and has been reduced from around US$1.2 trillion in the years immediately following the GFC.

However, the public debt will continue to grow unless the deficit is returned to surplus and hence the Republican controlled lower house is becoming increasingly active over the budget and the self-imposed US$16.7bn debt ceiling. The recent budget stand-off in Congress forced a government shutdown that may hurt the US recovery but financial markets remained calm on the assumption that the budget and extension of the debt ceiling would eventually be approved, which indeed it was.

In Europe, the recovery is fragile and there still remains sovereign debt and bank solvency issues in the southern countries. There is also the larger question:  can the European monetary union succeed without a proper fiscal, banking and political union (of the kind that we see in the United Kingdom or the US)? Lonsec suspects not but we expect the EU to forge closer integration over the long term.

In China, its economic model for the past 40 years of export and investment led growth is becoming unbalanced and unsustainable. There is a concern that property and infrastructure development has become too large at 50% of the economy and has run ahead of income growth. More wealth needs to be distributed to its citizens to boost incomes and hence consumption.

China’s new leaders recognise the need for reform to drive the economy towards more sustainable and diversified growth across consumption, business investment, housing, government spending and net exports.

In Japan, the new Abe government is trying to get the country out of a debt deflation trap that has existed since the 1990 property bubble burst. Japan’s sovereign debt is very high at 240% of GDP and the central bank has a substantial money printing program aimed at keeping interest rates low and encouraging inflation but also keeping the currency weak. In addition, Japan is also dealing with an ageing population and increased competition from South Korea and China.

The structural issues mentioned above are all major issues and are not going to be solved overnight. It will take many years for each issue to be resolved or in the worst case, emerge as a crisis. We can’t know how they will all turn out but it pays to be aware of them when investing.

Australia

Compared to the US, Europe and Asia, Australia has relatively few issues. The budget deficit and public debt are low to moderate, the banking system is strong, the economy is diversified and the government should be more functional, after the recent election. The issues in Australia are more around encouraging growth outside of the mining sector and improving productivity.

However, one structural weakness could be the build-up of housing debt which is relatively high at around 100% of GDP. But the debt is being serviced and impairments are very low. Household debt is not likely to be an issue unless unemployment rises and/or credit becomes much more expensive, both of which seem unlikely given the economy continues to grow, inflation remains subdued and the banks are well capitalised.

Conclusion

A recovery in the US and Europe should lead to a rebound in global growth in 2014. However, we remain wary that the recovery is still fragile and there are still some major problems below the surface.

At this stage, we are retaining our largely neutral growth, underweight bonds and overweight cash stance. If we can gain greater comfort on the sustainability of the global recovery, we will look to increase growth weightings and reduce cash.

Source: Lonsec, October 2013

Disclaimer

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China’s growth is expected to slow to 7.5% this year; the offi cial government target in its 2011-2015 fi ve-year plan is for an average growth rate of 7.0% per annum. Growth is slowing partly because Europe’s recession has crimped exports but also because China’s central bank is deliberately seeking to tighten credit conditions to stop speculative investment into property and other assets.

China launched a credit-fueled investment boom in 2008/09 in response to the Global Financial Crisis (GFC), which saw total debt rise from 160% of GDP to 210% of GDP according to official figures. While these debt levels are manageable, there is a lingering concern that more debt has been accumulated in the ‘shadow banking system’ and that property speculation is continuing. Accordingly, the central bank recently moved to tighten credit conditions more aggressively with a particular focus on non-bank fi nancial intermediaries.

Even if growth slows to 7.0%, this is still a significant growth rate considering China’s annual GDP is now over US$8.2 trillion, ranking it as the second largest economy in the world (after the US at nearly US$16 trillion and excluding Europe as a region rather than a country).

However, China’s growth is likely to be less investment-intensive in the future given investment has grown to over 50% of the economy and China’s new leaders aim to rebalance the economy towards consumption.

A slowdown in investment will obviously reduce demand for steel and other building materials, which will impact many commodities like iron ore, coal, copper and alumina – all of which are key exports of Australia. At the same time that China’s demand for commodities is slowing, global supply is set to increase, so it is likely that commodity prices will continue to weaken and that Australia’s export income will be under pressure.

The rebalancing of China’s economy is important for its long term stability and it will remain an important market for Australia; however it is likely that we have seen the end of the global mining boom. We see a long period of lower commodity prices and reduced mining activity ahead.

A slowdown in mining will obviously be a drag on Australian growth, particularly in the mining states of Western Australia and Queensland, but surely lower interest rates and a falling AUD will offset the mining slowdown?

In the past, the answer would be a resounding yes, but this time other sectors of the economy – such as retail, housing construction and business investment – are only showing modest signs of recovery. Lonsec believes there are a number of reasons for this including:

1 Attitudes to debt have changed post GFC, with companies, households and government all seeking to increase savings and reduce debt levels.

2 Low business confi dence on poor profi t growth and burdensome government policy has led to a focus on productivity measures rather than investment.

3 Job insecurity stemming from business and government reducing employees, in a number of sectors, has led to cautious consumer behavior.

These factors are not going to change overnight but falling interest rates, a falling currency and a clear Federal election result should eventually see the broader economy rebound. Accordingly, we expect the Australian share market to retain an upward trend but recommend investors tilt their portfolios towards financials and industrials.

William Keenan – General Manager Equities Research – Lonsec

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