and carbon tax also appears to have moved investors to the sidelines.
Daryl LaBrooy CFP® Financial Adviser, Hillross Financial Services Licensee: Hillross Financial Services It’s been nearly four years since share markets in the US and Australia peaked. Although there has been a recovery of sorts in share prices, the Australian market, at the time of writing, is closer to its trough in March 2009 than its November 2007 peak. Overseas markets have fared better than Australia but are struggling at the moment to gain any headway. This present malaise is due to debt crises in Europe and the US having a negative impact on consumer sentiment around the developed world including Australia. With the 24/7 news cycle, any bad news elsewhere in the world is received in Australia very quickly and has a corresponding impact on confidence generally. Additionally, with around 40 per cent of investors in the Australian share market from overseas, any offshore concerns affects their investment intentions in Australia. The high Australian dollar and recent policy announcement in relation to the mining
Over the last 12 months, Australians have become more cautious with their money. Borrowing levels have fallen, saving levels gone up, retail spending has been pretty flat and property values stagnant or slightly lower. Despite nearly full employment and booming mineral exports, people are being very cautious. Investors appear to be heeding the warnings that too much debt is bad and have started repairing their personal finances. Just as companies raised a lot of equity in 2009 to reduce debt and increase cash levels, individuals are doing the same. Except, of course, personal excesses may take longer to rein in as people can’t raise capital in equity markets like companies can. So we are seeing a big reduction in personal risk appetites, cash (and term deposits) in Australia is king and all other investment opportunities are on the back burner. In the face of all this uncertainty, investors are happy to receive 6 per cent per annum on their cash investments and not take any unnecessary risks. If the cautiousness continues, the domestic economy will suffer unless interest cuts can get people to spend again and/or the resources boom offsets the lack of higher spending by consumers.
–– Eventually the US and Europe will have to get to grips with their mountains of debt – the question is when and how?
Sorab Daver CFP® Ascension Asia This will continue to have a significant impact not just on the Australian markets and our economy, but also on major international markets. With a mind boggling debt in excess of US$14 trillion and notwithstanding the fact that the US could have officially been bankrupt had the US legislature and leaders not agreed to a solution, they continued to remain in gridlock until the eleventh hour, keeping the world financial system tethering on a knife edge. The S&P downgrade of the US was therefore a brave and necessary step.
cheque and bailing them out with vast sums of public monies. This bold step could have pushed markets temporarily lower than even the nadirs of the past few years, but the bitter and necessary medicine may have entailed that we would have had a gradual recovery, with less chance of the current financial drama that is unravelling before our very eyes.
In hindsight it would appear that it would have been more prudent to let some major institutions and companies in the US and Europe collapse as dictated by the free market economy, rather than providing a virtual blank
By almost guaranteeing to keep interest rates low for the next several months, the US Federal Reserve has virtually acknowledged that the situation is dire than what it may appear to most analysts. The extreme and unprecedented
10 | financial
planning | SEPTEMBER 2011
Eventually the US and Europe will have to get to grips with their mountains of debt – the question is when and how?
volatility we have witnessed in major stock markets, including our own, indicates that markets are justifiably nervous and yet another major crash followed by a slower up tick, cannot be ruled out. Yes, the Australian economy is comparatively in better shape, but only due to our strong mining sector; as an economy, most of our eggs are now in this one basket. One way or the other, it’s going be a wild ride for many months to come....