2013 - Low interest environment in Australia

dalang999

Australia is in an historical low interest rate environment with further rate cuts from the Reserve Bank forecast for 2013 how does this impact the investment community and the economy.

Your views are most welcomed. Let me put forward some of my discussion points

1) Will not kick-start the economy because of risk aversion. Those with a mortgage will channel savings into their mortgage and those who are mortgage-free (retirees) will spend less because their term deposit savings are shrinking. Double hit on the spending.

2) Will not kick-start the property slump. The gap between cash rate and bank lending rates will increase and therefore it is relatively more 'expensive' to fund a property purchase with a loan. What I'm referring to is that Banks will hold back the cuts for themselves. Banks aren't here to help the average Australian to buy a house; their purpose it to please shareholders.

3) 2013 is the Year of the Snake. But for the equities market 2013 will be the Year of the Dividend. With such low interest rates both retail and institutional investors will seek to preserve income. That means looking for high-yield safe plays in the domestic market. Where's the first place you think of to get quality fully-franked dividends but Banks! So it goes back to my point number 2); Banks have to please these shareholders who want high dividends. To do that they'll have to maintain margins which means 'holding back rate cuts'

Carefully monitor your portfolio with FF dividends and company that pays good yields....you may begin to see a rally with no news. This is the effect of point number 3) slowly happening. In 2013, companies will 'offer' higher yields to maintain short term share price performance. I have two companies in my portfolio that have changed dividend policy (target higher payout ratio) to cater for Australia's new love affair with Dividends.

Happy investing, may this year bring you more luck and good fortune.

      

findajob

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findajob

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