Rob Coyte's Blog
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Is the world economy and investment markets getting better?
Is the world economy and investment markets getting better? At the very least investors are saying through their actions that the world going forward is not as grim as what they thought in March 2009.
The broadest index of the US share market, the S&P 500 has soared 91 percent from a 12 year low in March 2009. We have all heard about the massive government stimulus measures but also company profits are exceeding expectations. Companies in the S&P 500 posted higher than estimated results in all three quarters reported so far for 2010. Furthermore, looking forward analysts predict that company earnings will increase 14 percent in 2011, according to Bloomberg.
The US is faced with unemployment at high levels around 10% and getting enough economic growth to reduce that figure is posing to be a big problem. Furthermore, the US housing market remains weak although it has stabilised which along with employment is also an important driver for an economy that relies on consumer spending.
Whilst the US share market has effectively doubled over this period the value of the Australian dollar has also risen rapidly which means that overseas assets held in $US such as those held in managed funds appear not to have done anything when viewed in Australian dollar terms. Over the long term currency has no impact as you win some years and lose in others. I believe the Australian dollar will weaken in relation to the US dollar for a vast range of reasons. This may happen in 6 months or 6 years in the meantime review your strategy but importantly don’t chase your tail simply ask given current valuations where is the risk? I believe there is long term value in a range of assets including commercial property and shares. The Australian dollar and residential property market I would argue the risks of them getting substantially higher are low and indeed the risk is that those assets may fall given current valuations.
The broadest index of the US share market, the S&P 500 has soared 91 percent from a 12 year low in March 2009. We have all heard about the massive government stimulus measures but also company profits are exceeding expectations. Companies in the S&P 500 posted higher than estimated results in all three quarters reported so far for 2010. Furthermore, looking forward analysts predict that company earnings will increase 14 percent in 2011, according to Bloomberg.
The US is faced with unemployment at high levels around 10% and getting enough economic growth to reduce that figure is posing to be a big problem. Furthermore, the US housing market remains weak although it has stabilised which along with employment is also an important driver for an economy that relies on consumer spending.
Whilst the US share market has effectively doubled over this period the value of the Australian dollar has also risen rapidly which means that overseas assets held in $US such as those held in managed funds appear not to have done anything when viewed in Australian dollar terms. Over the long term currency has no impact as you win some years and lose in others. I believe the Australian dollar will weaken in relation to the US dollar for a vast range of reasons. This may happen in 6 months or 6 years in the meantime review your strategy but importantly don’t chase your tail simply ask given current valuations where is the risk? I believe there is long term value in a range of assets including commercial property and shares. The Australian dollar and residential property market I would argue the risks of them getting substantially higher are low and indeed the risk is that those assets may fall given current valuations.
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