Over the next month we are going to focus on the fundamentals driving the Australian
economy and some of the asset plays we have to consider. A more focused approach to our
growing readership of our newsletter. More connected articles should help you build a strong
fundamental case for asset allocation.
Lower GDP Growth Rate
GDP dropped by $100 billion AUD from $1.3 trillion AUD to $1.2 trillion AUD. This is largely
due to the impact on the mining sector. Mining production fell from 11% in July 2014 to 0.9%
today. This no doubt would force the Australian economy to diversify into other sectors, this
process will be slow but the picture is likely to improve in the future.
Higher Corporate Profits
This is a metric that reveals a lot about the potential for re-investment into the economy.
Corporate profits grew from $77bn AUD to $82 bn AUD. Solid growth on the quarter. This
should turn attention to equity markets in Australia if this trend continues. We believe that
investment is likely to increase in the business and there will be some inflows into the
Personal Savings Down And Low Wage Growth
The personal savings ratio has fallen from 9.5% to 4.7% from July 2014 to now. This is a
similar picture to most countries as middle income earners suffer from price inflation and
higher living costs. Consumer spending is likely to be debt fueled, so we are expecting a
drive towards easing in terms of monetary policy. FX guys, you know what that means…
To conclude – It really depends on what you consider positive for asset growth. Higher
corporate profits means more investments, job creation and in turn spending. However with
lower wages in the real economy, this may not materialize, this is being reflected on lower
GDP output. Monetary easing is stemming the blood loss but the future is uncertain at best.
Their is a case for equity growth and bullish stocks, profitable companies are investable but
with investors focused on the politics rather than the numbers only the hardened investor will
see any opportunity.