Is there a Silver Lining
It has been a difficult time for investors lately. The volatility of the global financial market has made many around the world very nervous to say the least. The Governments of the major economies have agreed to a coordinated approach to try to ease the impacts on markets however, and as a result, confidence appears to be returning.
While there are national differences, the rescue packages being introduced are broadly about Government guarantees and making new capital available to financiers. Maintaining their ability to lend to the businesses, consumers and home buyers in the real economy continues to be a high priority for Governments.
The banking system has held up very well here however. The regulation of the Australian banking system and past lessons learnt have contributed to the banks being very profitable, well capitalised and with relatively low bad debts.
All that said, while we see the building blocks for a sustained recovery in the world's major investment markets, conditions will remain volatile. There will be concern about recession in the major industrialised countries and the related impact on commodity prices and the developing economies. Some slowing of growth in China and India is occurring but there is no serious suggestion of recession in those economies, where a mid to high single digit GDP growth is still predicted.
Within Australia, confidence and spending should get a boost with the recent 1% interest rate cut and the payments to Pensioners and other groups. This should boost retail spending while activity in businesses related to exports and construction of public and private infrastructure remains very strong.
If, as seems likely, we can avoid a serious recession in Australia, local shares in our quality companies would seem very cheap. Given the interest rate outlook, if you happen to have some spare cash lying around, it might just be worth taking a closer look at the current market opportunities. For more information on the issues discussed in this article, or for other financial planning advice – please call us at WHK and ask to speak to one of our Financial Planning Representatives.