The fading ‘wealth effect’ continues to weigh on the domestic economy as consumers and businesses adjust to a weaker housing environment. A strong infrastructure pipeline may take some pressure off over the short term, but with businesses looking to conserve capital rather than re-invest, we think the medium-term outlook will remain subdued.
Without meaningful tailwinds to offset some of the weakness, the Australian market is likely to underperform other developed markets over the next 12-24 months. Meanwhile, the US economy continues to power ahead. Macro indicators of employment, corporate profits, consumer sentiment, and industrial production inflation are all at multi-decade highs. An investment in the broad based S&P 500 index would have returned investors 17 per cent over the past two years. With the Australian market representing just 2pc of world market capitalisation, we think it’s prudent to diversify beyond the domestic market to access global themes and sectors that would otherwise be missed.
- The Euro Area economy continues to strengthen. Survey results point to solid broad-based growth. In particular, recovery in investment continues to benefit from favourable financing conditions and improvements in corporate profitability.
- The United States continues to lead the global economy post-GFC. We forecast the US economy to accelerate from 2.3pc GDP growth in 2017 to 2.9pc in 2018. US corporate profit growth is expected to finish up an impressive 20pc in 2018.
Investing offshore has never been easier with 147 ASX listed products available to choose from. Much has been written about the fact that Australian retail investors’ portfolios are heavily weighted to Australian equities, despite the domestic market representing a very small proportion of global equity markets.
It is not difficult to understand the reasons for this home bias given:
- The benefits of the dividend franking system;
- The perceived difficulties of direct investing in foreign markets; and
- The cross-currency risks associated with offshore.
The universe of global equity investment opportunities is vast, but researching and selecting the right shares to invest in is a challenging task for the typical investor. There are numerous indirect options for Australian investors to gain international exposure, with both managed and passive opportunities. There are a significant number of exchange traded funds (ETFs) with a broad range of exposures to global equities.
These are passive investments designed to track the performance of a certain index. There are also a large number of unlisted actively managed funds offering exposure to a broad range of international markets and sectors.
For investors looking for actively managed international equity exposure, with the benefits of ASX market liquidity, there is an increasing number of listed investment companies, listed investment trusts and active ETF options.
- Boh Burima Financial Adviser (Authorised Representative: 000341081) Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410