crisis of confidence and those associated with ongoing debt deleveraging.
from a crisis of confidence in Europe will
primarily be focused on eurozone and global debt markets. This could
potentially impact Australian corporations with high debt levels as well as
Australian banks seeking wholesale funding.
Australian corporations have very low debt levels and Australian banks have
been reducing their dependence on wholesale funding due to the very strong
growth in domestic term deposits.
The damage from
a crisis of confidence would likely be fleeting. If anything, it might create a
short-term buying opportunity for local investors in the Australian market.
ongoing global debt reduction will slow global economic growth for a sustained
low-growth world is not necessarily bad for markets or investors. There are
still opportunities for Australian investors to generate income and returns.
market, for example, has one of the highest dividends yields in the world and
some of the best growth prospects.
dividend yields are high and sustainable and even if world markets do not go
anywhere in 2012-3, investors can receive close to a 6 per cent fully franked
yield from the local Australian market.
With the cash
rate heading down, this yield will look more and more attractive to investors.
Companies that can deliver a high and sustainable dividend yield, or companies
that have growth in a low-growth world, or both, will be bid up by the market.
They are the ones we want to own.
whether a company is a good quality company, low quality company, high growth,
low growth; pretty much all companies are trading around very similar ranges.
We think there
should be differentiation, there should be discernment in the market - and
there will be at some stage - and that's where we see opportunities.
I also think
there is also some confusion in the market about what is being caused by
Reserve Bank of Australia
interest rate settings and what is being caused by large structural shifts in
markets and economies. Bricks-and-mortar retailers are facing structural
headwinds that have more to do with consumer preference changes, focus on value
for money and channel to market and very little to do with interest rate policy.
settings will not change the long-term structural themes playing out in the
economy. The significant structural headwinds facing large parts of the
automotive sector, aluminium smelting, steel, media and bricks-and-mortar
retailers will be there for a prolonged period regardless of interest rates.
Paul Taylor is head of Australian
Equities at Fidelity Worldwide Investment