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Michael Savy Blog post by Michael Savy

2016 Global Economy & Equity Outlook (Part 4) | Australian Economy

Here are the other parts of the 2016 Global Economy & Equity Outlook:

Part 1: United States Economy
Part 2: Asian and European Economy
Part 3: Commodities Market
Part 4: Australian Economy

Ben Kingsley: So now let’s come into Australia. Where do you see – again we started pretty sluggishly, terrible sort of start. The first days of trade, we’re pretty ordinary.

Michael Savy: Yeah. Collectively the whole world with regards to the market itself struggled and has been one of the worst on record. Again that was a flowing effect from the Chinese and that expectation of can the world generate enough growth or reasonable growth there. That was reflected in the fact that the IMF did cut the rates, the forecast, just marginally from 3.4 to 3.2.

Ben Kingsley: Yeah.

Michael Savy: But for us domestically, I don’t think we’re as – similar to the conversation about the US. We’re not in that dire position. Certainly there’s a key sector or segment of our economy that’s struggling and has been the last few years where you know about that.

But some of the transition has – we’re starting to see that and with regards to our currency coming off into the 70s, low 70s, we’re starting to see some of our export numbers pick up and we will probably see that in the incoming tourism traffic as well.

Ben Kingsley: Correct. So low Australian dollar, free trading agreements, some really big ones in there. Then you also have that mega deal in that free trade agreement between America, China and all the sort of – some of the Pacific nations, Australia and so forth. Really good stuff.

I would love to see government spending slow down. I would love to see us focus on a bit of debt reduction from a government point of view as well, which is some tough decisions. But when you’ve been in positive economic growth for 25 years, a lot of people don’t realise how hard it can be.

So they think, well, the money is there. We’re spending money we don’t have, so I would like to see that slow down a little bit. Broadly speaking in the actual economy, construction is going to go continue to keep growing as we saw those permits, start the planning, approvals start to come through. I think that we will have a strong construction. Got a view on that?

Michael Savy: Yeah. Look, I think the housing and – or housing or property-related construction has been one of the key components of propping up the Australian economy, given the mining sector. So it is a critical factor in maintaining the growth. Obviously there are concerns about property valuations and so on and so forth. But really that’s limited to probably two cities in Australia.

Ben Kingsley: Yeah.

Michael Savy: But it doesn’t necessarily mean that the whole Australia is going to be …

Ben Kingsley: Yeah. Each of those markets go terribly. There might be a certain type of stock – we’ve talked about it before, medium and high density apartments we’re worried about. But that can change sentiments in terms of the horror stories that we might hear. So from an equity markets point of view on the Australian side or more broadly, I didn’t give you a chance to talk about where you see – you know, ranking the economy, where do you see it?

Michael Savy: Look, the Australian economy is probably more similar to the US I think in that we’re positioned probably around that six mark.

Ben Kingsley: Yeah.

Michael Savy: So it’s not as bad. However our stock market on the other hand, it is very much linked to the Chinese story. So we get pulled left and right depending on external factors. In terms of our reporting season similar to the rest of the world, our reporting season, is subject to cost cutting. So concerns on whether or not revenue will tick up and profit margins go up that way.

Ben Kingsley: Yeah.

Michael Savy: Or whether it will be continued cost cutting.

Ben Kingsley: So obviously we spend a lot of time in investing in the Australian markets but we also invest overseas for our clients. Where do you see the opportunities in the local market for our clients this year?

Michael Savy: Certainly the – if you have the – I guess the conviction and the confidence. If we’re looking for value, then obviously that is in the materials and energy space.

Ben Kingsley: Yeah.

Michael Savy: But certainly it’s someone – it’s for someone who has certainly a lot of confidence in the recovery I suppose versus the plotting along of the industrials and those sectors. They’re generally doing OK.

Ben Kingsley: Yeah.

Michael Savy: So we should still be able to pick up our – probably plus fives in that.

Ben Kingsley: You make a good point that predominantly we’re out of the market. Is that a fair position to say? We’re sort of our – in terms of our investment, rate of the risk, risk in terms of equities and share market. We’ve got investments in other alternatives.

Michael Savy: Look, technically, we – first half last year, we took some profits and we sat out, increased our cash waiting.

Ben Kingsley: Yeah.

Michael Savy: In the dips – unfortunately, there was a – there’s quite a lot of volatility late last year but in two key data points, we did buy back in to the point that we bought back in and reduced that cash levels. So we got a little bit left in the reserves, just waiting for a little bit more clarity.

I guess when we tie it back to the rest of – with regards to the – each of the global investment world, having the benefit or having the ability to invest in other markets is an attractive proposition, especially given that we’re talking about – one thing we know is that the Chinese are growing their consumer component of their economy.

Ben Kingsley: Yeah.

Michael Savy: And even in Australia, we no longer have – I guess the mining and materials sector is no longer providing what the Chinese necessarily want or prepared to pay for.

Ben Kingsley: Yeah.

Michael Savy: But we’re seeing it on the other side with regards to services in other products. So on the flipside we see things like Blackmores and the milk products, which is a services product to the consumer. So it’s repositioning the portfolio and the holdings to really target …

Ben Kingsley: The opportunities.

Michael Savy: The opportunities.

Ben Kingsley: Yeah, OK. So wrapping up, 2016 could be a bit of a bumpy year, a bit of volatility still. Do you see a direction?

Michael Savy: I would expect that this one would probably be a little bit more volatile because we do have more geopolitical risks in there and a little bit of lack of clarity

Ben Kingsley: OK. So it’s probably a tread carefully year. Michael and the team will be making sure that we hopefully get it right like all these things. Some of them are very difficult to predict but that’s exactly what we’re paid, to look after you in the best way we possibly can. So we wanted to thank you for watching this outlook video presentation on the global economy and also the equity markets and if there’s anything we can help you with or answer any of your own personal questions, feel free to reach out to the team at [email protected] or you can also go into our website and watch some of our other videos that we have in regards to our financial planning area but also our property and wealth creation areas as well. Thanks for watching.

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