Navigating the Changing Financial Landscape
The landscape for investors has changed significantly over the past 12 months with many asset classes declining in 2022. We are currently experiencing the highest inflation and fastest pace of interest rate rises for 40 years.
With the days of low/zero interest rate policy now behind us, investors should take the opportunity to review their investments to ensure they are well positioned into the future.
Reviewing an investment portfolio to make sure it is well positioned for your specific objectives, risk profile, and maintaining an appropriate level of diversification are always important, but particularly now, after what is a significant shift in the global financial landscape. We encourage everyone to constantly reassess their investments to ensure to remain appropriate.
Our updated views on markets and managing portfolios for 2023 and beyond are as follows:
- We expect 2023 to remain choppy for investors as the ongoing adjustment to higher interest rates continues. We maintain our conservative bias. Income continues to be a key component of Australian investors portfolio returns and any significant corrections that occur should continue to be viewed as opportunities to acquire income paying investments.
- Inflation is likely to remain persistent over the next 24 months. While some inflationary pressures will reduce, we expect energy prices to remain high and hence inflation to remain higher than we have seen over the past decade.
- We expect economic growth to slow in the short to medium term. While we have not had an official recession to date, economic activity is reducing in the USA and Europe. A recession to 2023 will not come as a surprise and could now be considered a consensus view. We believe Australia should hold up well compared to global peers.
- We continue to have a bias towards Australian stocks, with a preference for large cap blue chip stocks that can adjust their prices to match rising input costs and pay a growing dividend income stream. Many of the ASX top 20 stocks have the ability to achieve this.
- We continue to like precious metals as an inflation hedge and portfolio diversifier.
- Ongoing declines in both commercial and residential prices would not surprise. We are comfortable being underweight listed property and infrastructure.
- Rates available on cash and deposits have increased significantly in recent months. We are now back to the point where it is worth shopping around as the disparity on rates available at different banks has re-emerged. Our expectation is that term deposit rates in Australia will peak towards mid 2023, and we remain reluctant to lock funds away for longer 12 months.
- Hybrid securities have held up well with an increasing income yield being received as interest rates have risen, with yields of 6% being received. We continue to watch credit spreads closely and this remains the key risk for this asset class.
- Traditional fixed income and bonds have not done well in 2022, given as interest rates rise, we typically see the value of an existing bond fall. As interest rates continue to rise, bonds will begin looking attractive again for long term investors.
- Despite weakening recently, we remain neutral the Australian dollar at present. We have a preference to have hedging in place for some of a portfolio’s global exposure.
As always, care should be taken prior to implementing any changes to your financial position and the above information is for your general information only.
We encourage you to reach out to us to review your investment portfolio and make sure it aligns with your specific objectives, risk profile, and maintains an appropriate level of diversification.
We are here to help guide you through these challenging times and ensure you are well-prepared for the future. Don’t hesitate to contact us today.