An international fund manager has forecast the pursuit of yield by Australian investors, particularly SMSF trustees, will strengthen as official interest rates fall as has been the case in overseas markets.
“It’s not only the Australian central bank that’s cut its interest rates this year, 45 central banks globally have all cut interest rates this year [a move] which is basically turning on the liquidity taps. And I think this will stimulate a phenomenon that has existed post-GFC (global financial crisis) globally…[that will see] Australians moving their portfolios, particularly SMSFs for example that tend to have a 20 per cent allocation to cash, as they start to realise that the returns on cash are being eroded by inflation,” Fidelity International cross-asset investment specialist Anthony Doyle told attendees at a briefing for advisers.
“I think Australians in particular will move to riskier asset classes in the hope of generating the returns they once enjoyed from cash,” he added.
Doyle recognised this pattern of behaviour had been witnessed among overseas investors but said “it’s new for Australians in that cash no longer generates positive real returns.”
“So I think this behaviour will be accelerated,” he predicted.
With regard to effective monetary policy Doyle anticipated the Reserve Bank of Australia’s decision to lower the official interest rate to 0.75 per cent may not stimulate consumer spending like it is supposed to.
He pointed out in times of low interest rates, returns from other asset classes also tend to drop, meaning consumers will have to save more just to maintain the returns they had been used to receiving from their investments previously.
“It means I’m not actually going out and spending and generating higher consumption, which is 55 per cent of the Australian economy, I’m actually saving more,” Doyle said.
Further he said the non-stimulus result would be emphasised by Australians who would see these economic conditions as an opportunity to pay off a larger portion of their household debt, usually in the form of a mortgage.