“The Australian market is currently very attractively valued,” he says.
“It is very realistic to expect Australian market returns of 10 per cent to 15 per cent over the next 12 months from dividends and earnings growth, even without a valuation uplift.”
Fears of a global recession and a financial system crises in Europe are driving markets lower, says Matt Sherwood, head of investment market research at Perpetual Investments.
“The only assets that have risen are bonds and gold,” says Sherwood. “I think it’s going to continue with heightened uncertainty.”
The economic stimulus cupboard is bare, he says. Interest rates are near zero in major economies. Governments seem reluctant to spend because of fears budget deficits will expand.
“The only policy left is quantitative easing but inflation is on the rise,” says Sherwood.
“At the moment there is market irrationality, more hysteria than anything else.”
Andrew Canobi, portfolio manager at Deutsche Asset Management, says investor preference for US Government bonds will continue amid the plunge in global stock markets,
“Fundamentally people are concerned about growth and that means there will be more money will be invested in U.S. Treasuries,” Canobi says.
Deutsche Asset Management says US Government 10-year bond yields may fall to 2 per cent. European investors are investing in US-dollar assets. That will be a major force in pushing US Government bond yields lower, says Canobi.
“The trend of investors looking at Australian bonds as low risk will continue,” he says.
“But foreigners who have invested in Australia may take their money out.”
Superannuation funds should speak with members before they talk to investment managers when equity markets collapse, says David Hartley, chief investment officer at Sunsuper.
Hartley says many Sunsuper members revised their investment strategies after the 2008 crash and now have higher exposures to defensive assets.
“They have been through this. Through the advice we have given them they’ve positioned themselves so it isn’t as painful,” Hartley says.
He was speaking from the Brisbane airport after visiting the $18 billion fund’s call centre in the Queensland capital.
Hartley is worried by the market downturn, but this state of mind is nothing new.
“I’m always worried, even when things are going well.”
Hartley says the market rout will provide buying opportunities for Australian equity funds managers as good and bad stocks have been indiscriminately punished.
“Managers need to buy stocks at good valuations or get out if necessary.”
Reporting by Simon Hoyle, Brett Cole and Simon Mumme
