Further interest rate cuts, the need for highly selective and active equity investments, and a likely cut to Australia’s credit rating are among some of the core views to emerge from the first investment roundtable organised by Crestone.
Coupled with a “lower for longer” view on domestic interest rates, the inaugural Crestone Investment Forum roundtable also expects the US Federal Reserve funds rate to “normalise” in the next few years, leaving US rates capped at or below 2.5%.
The roundtable was the wealth management firm’s first official function under the Crestone banner and drew together leading investment managers to air and debate their perspectives on the pertinent issues driving investment markets.
Crestone’s Chief Investment Officer, Dr David Sokulsky, says the forum was “an important milestone event” for the employee-owned Crestone, which recently finalised its acquisition of UBS Wealth Management Australia Ltd.
“It focused firmly on the current challenges facing the professional investment industry in what is currently clearly a dynamic and uncertain global economic and political landscape,” Dr Sokulsky said.
“The process of seeking diverse views across asset classes and geographies from among the ranks of Australia’s top fund managers forms a fundamental element of the robust Crestone investment process.”
A commonality, but not consensus, of views emerged from the forum, notwithstanding the divide between equity and fixed income managers, the inherent biases to asset classes, and a diversity of views across these classes and individuals.
Among these—aired by professionals from Blackrock Australia, BT Investment Management, Credit Suisse Equities (Australia), Lazard Asset Management, Magellan Financial Group, Perpetual, UBS Asset Management and UBS Global Research— were the following:
- • Domestic interest rates will be further cut by the RBA. The unknowns are the timing and extent of the cuts. This is in the wake of the latest GDP numbers which showed the economy growing 1.1 per cent in seasonally adjusted terms. In addition, the impending upward interest rate moves by the US Federal Reserve removing pressure on the Australian dollar. Domestic inflation is seen as the trigger to further cuts to the target cash rate;
- • Australian equities appear overvalued and in expensive territory. There is also concern around the banks given that the low levels of bad debt seem unsustainable, and overly high dividend pay-out ratios may need to be reduced;
- • The US Federal Reserve funds rate will undergo a normalisation during the next three to five years. This is expected to leave rates capped at between 2.0 per cent and 2.5 per cent;
- • The ascension of Republican Party nominee Donald Trump to the White House is, likewise, considered largely unlikely. But should a Trump presidency transpire, investors will need to be cautions of any policy implications— particularly trade and foreign affairs between the US and China. This could have an impact on the global economy. While Trump’s foreign policy rhetoric will tone down during the presidential campaign, some ensuing market volatility cannot be ruled out;
- • Global fiscal responses are anticipated in order to combat the low inflation environment worldwide. This is expected to start with Japan followed by many of the world’s other major economies;
- • Australia’s AAA credit rating is likely to be cut, leading the Australian dollar to fall to below USD0.60 and largely benefiting the domestic economy; and
- • Passive investment should take a back seat to active investment given that the current climate demands investors be highly specific about their investment selections.
Dr Sokulsky said the Crestone Investment Forum roundtable will become a regular calendar event for Crestone, harnessing the best available contemporary market intelligence.
Having external investment managers provide direct input into Crestone’s house view is a crucial element in Crestone’s investment process.
“This forum allows for some of the best fund managers and strategists in Australia to openly discuss and debate key investment topics and issues driving markets” he said.
