Investment Markets - July 2009
Written by Tony Gray   
Monday, 13 July 2009 10:50

International Shares

The Australian dollar has retreated from recent highs and is now close to the average currency level since the dollar floated in 1983, trading at $0.78 US to $1.00 AUD.  I am neutral on international investment from a currency perspective and for many portfolios some additional investment in this asset class is warranted.

Long-term, I recommend an allocation to the Asian region and emerging markets generally.  In the short-term, the probability of these markets falling is increasing, as China's exports continue to fall.  I would treat any fall through to the end of 2010 as an opportunity to gain/add exposure.  Japan also appears better placed for recovery, with a relatively strong banking system, high savings and deposit rates and positioned for an export recovery when the global economy returns to growth.

There are managed funds and low cost exchange traded funds that provide a suitable exposure that we can discuss in the light of your personal portfolio.

Listed Property

I continue to recommend adding to listed property within the range set for the portfolio.  I expect further declines in property values and whilst some weakness in listed prices may occur, it appears to be adequately priced in for most larger trusts (with the exception of Westfield group) - with low gearing levels, low short-term refinancing needs, substantial discount to asset backing and high rental backed income yields.

Cash & Fixed Interest

The Australian Securities Exchange is planning to make it possible to purchase bonds through the exchange, which will make it easier to add this asset class to the portfolio mix.

Term deposit yields have crept modestly higher in the past few months and if kept relatively short (within 2 years) still receive the benefit of the government guarantee.  While yields are low, they are now at a sufficient premium to cash account rates to justify some allocation away from cash and this is a topic for discussion when we next talk through your portfolio.

Australian Shares

Energy stocks appear expensive, although they have given up some ground in the past few weeks as the oil price has fallen.  Mining stocks remain a higher risk proposition given the overhang of China's stockpiles.

It appears that the Chinese economy is being propped up by the massive stimulus package but ultimately they cannot avoid the fact that the rest of the world is now buying 21% less from China than a year ago!  Given exports represented 38% of China's economy, this highlights the risks to Australia's mining sector and economy.

One defensive stock that may be considered for portfolios is Telstra Corporation Limited (TLS).  My expectation is that the company will grow earnings at a slow rate - I would be happy if they keep pace with inflation of (say) 2% to 3% per annum.  The high income yield (8.3% fully franked historical) is fully supported by cash-flow.  After meeting the dividend and continued capital expenditure, the company is still in a position to pay debt down by some $1.5 billion per annum this year (net debt presently stands at around $15 billion).

The pull-back in the general sharemarket from the June highs is presenting some opportunities and modest additional falls are hoped for in the next few months.  The recommendation is to continue accumulating stock subject to existing allocation and your investment strategy.

Please treat the above comments as general in nature, with no action to occur in reliance without first seeking advice personal to your position.
Last Updated on Saturday, 18 July 2009 23:12

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