HEWISON INSIGHTS
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Economic Update
Economic Update
Simon Curtain
Partner/Private Client Adviser
11 May 2015
A slowdown in China’s economy and the wind-down of our resources boom is causing our economy to look looking to previously ‘unloved’ industries such as tourism and leisure to offset the waning resources sector. This transition has not been ideal, with economic growth around 2.5 per cent year on year, as opposed to average growth of 3 to 3.25 per cent.
In response, the Reserve Bank of Australia (RBA) cut interest rates to a historic low of 2 per cent in May 2015. Interest rates have been in decline since November 2011 and are intended to encourage business investment and consumer spending in a bid to strengthen the economy. A statement issued by Finder has sighted that moderate economic growth, a high Australian dollar, and poor consumer confidence are the foremost reasons for the decline in interest rates.
Further to this, the Australian dollar has recently been trading at around US80c. The RBA has been talking down the value of the dollar over the last twelve months, with the reasoning that a lower dollar would make Australia more competitive and boost economic growth. The Australian dollar has fallen approximately 15 per cent over the past twelve months. With the prospect of lower interest rates in Australia over coming months and potentially rising interest rates after June in the United States, the Australian dollar may fall further.
Low interest rates typically cause investors to question whether cash investments are suitable to hold for the longer term. This drives other asset classes higher as money is re-directed, for example, to the sharemarket.
Between January and May 2015, the Australian sharemarket has appreciated around five per cent, and dividend yields on Australian shares remain healthy at around 5.5 per cent, including franking credits. This is a far more attractive prospect when compared to a 3 per cent return on term deposits.
At Hewison Private Wealth, we continue to monitor the global landscape and identify potential investment opportunities for our clients, while keeping your long term goals and objectives front of mind. The key to managing external policy changes, such as interest rate cuts, or a decline in a particular sector, is to maintain a diversified portfolio with a good mix of income and growth characteristics for long term wealth accumulation.
The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email [email protected] or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.