The Australian share market will become too constrained to handle the increasing level of funds invested in superannuation, forcing investors to look to overseas markets, the head of a boutique investment manager has predicted.
According to Investors Mutual investment director Anton Tagliaferro, the Australian share market has been a good place to invest over the past two decades, but its small size, as well as its concentrated nature, means investors will have to consider overseas investments for further growth.
“The last 20 years have been a great market in Australia and will continue to be as the population continues to grow,” Tagliaferro said.
“At present, however, the market capitalisation is $1.8 trillion and there is $2.7 trillion in super. The forecast is that by 2030 the superannuation pool will grow to $8 trillion and the local stock market will not be able to keep track with that growth in super.”
He noted while the share index in Australia was concentrated with large weightings to the banking and resources sectors, the disappearance of other sectors had intensified that concentration, strengthening the case for overseas investments.
“We have seen sectors in Australia that have disappeared, such as brewers and food producers, so the over-concentration has continued, while sectors that are quickly growing overseas, such as IT and healthcare, are very limited in Australia,” he said.
“Greater levels of competition have also resulted in tighter profit margins as Australian businesses sought to compete against international entrants,” he said, adding this greater competitiveness means earnings growth is harder to find currently.
“Despite the economy doing well and unemployment remaining low, profit margins across most sectors are tight. The days of profit growth coming as the economy grows is no longer the case.”
Tagliaferro’s comments come as Investors Mutual partners with United States-based investment firm Loomis Sayles to launch a global shares fund to Australian investors.
The Loomis Sayles Global Equity Fund will be distributed to Australian advisers and direct investors by Investors Mutual as responsible entity for the fund and will charge a 1.23 per cent investment management fee with no additional performance fees.