Looking to the year ahead, the million dollar question is whether the development of the
emerging markets will continue to keep global growth ticking over, or will the sub-prime fallout
and forecasts of slower US growth continue into recession and drag down the rest of
the world’s economies?
There is no clear cut answer but lets examine the facts:
- Western economies look like they will experience a slowdown in 2008, although the
scale of which is open to debate. As a result, companies heavily reliant upon consumer
spending are the most likely to suffer.
Australia has just elected a new government, but we do not see this having major
implications for the economy or markets in 2008. The bigger issue for us is how much
tightening the Reserve Bank will have to do to get on top of the inflation outlook.
- The recent worldwide share market falls resulting from increases in defaults on US
sub-prime mortgage lending may have not yet run its full course, there may yet be
more bad news.
- A slowdown in the US economy is likely to lead to a reduction in interest rates and as a
result investors are likely to look overseas for higher returns, countries like China, India
and Russia/the former Eastern bloc with higher growth and interest rates.
Some analysts are dismissing China as they feel it’s
too heavily reliant upon the US economy. However,
China
is a lot more robust than it was a few years
ago and
the country is industrialising at a
phenomenal pace. Throw in the Beijing Olympics
and 2008 looks like it
could still be an
investment opportunity.
One important to note with these new emerging
markets; their economies are much more volatile
than Australian equities and definitely not for the
faint hearted. Whilst I personally don’t feel that these
economies are vastly over-inflated, in the
short term the bull run could well be in its last
Phase. This phase can be the most rewarding and
exciting, but is also at its most volatile.
FUNDS FOCUS Investment newsletter: Issue 1, January 2008 |
