Outlook for 3rd Quarter 2011
Below is the Investment Committee’s outlook for various asset classes for the 3rd quarter 2011.
Overweight
- Fixed income: select areas of the fixed income markets remain attractive, such as Term Deposits, subordinated debt of retail authorised deposit taking institutions, senior loans on completed commercial real estate, and certain listed ASX securities.
- US Residential Property: select property markets in the USA have become increasing attractively priced, offer significant rental yields as well as the opportunity to capatilse on high Australian dollar.
Neutral
- Fixed income: higher end investment grade bond yields have noticeably compressed, providing more marginal value; term deposits provide safety and relatively good values with historically high spreads to swaps, however offer little flexibility and inflation protection.
- AUS Residential Property: Sydney and Canberra approaching fair value, though rental yields remain relatively attractive.
- Australian & Asian Equities: Medium to long term outlook remains positive for Australian and Asian share markets; in the short term, while valuations are not stretched, high correlation with US and European markets as well as high volatility remain concerns.
- Gold: Gold serves multiple purposes: financial insurance, inflation hedge, currency protection. Downside should be supported; current levels favour gradually adding to exposure if underweight.
- Commodities/Resources: Fundamental drivers such as urbanisation and industrialisation in Asia underpin strong demand growth, and natural resources also provide important diversification benefits and an inflation hedge. Additional quantitative easing measures undertaken by many central banks should provide additional support. However, in the near term increasing calls for fiscal austerity could dampen demand.
- Office Property: Generally fair value, though very asset specific.
- Infrastructure: Potential attraction as long-duration income asset, though listed funds offer limited appeal. Preference for social rather than commercial infrastructure.
Negative
- US & European Equities: Growth outlook and valuations remain unattractive relative to Australian & Asian share markets.
- AUS Residential Property: Melbourne, Brisbane, Gold Coast, Adelaide and some regional areas remain over-priced.
- Industrial Property: Supply/demand fundamentals remain unattractive, high levels of overhang in market.
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