February 2013 Review Comments
Written by Tony Gray   
Friday, 15 February 2013 14:24

Portfolio Valuation & Comment

Australian and international share markets have had a stellar run in the past 7 months, particularly amongst the larger companies.  Half yearly results are now being released to the market and will reveal if the renewed optimism is justified?

One significant tail-win has been falling term deposit rates and funds flowing back from bonds to equities.  Economists are divided on the outlook for 2013 – some expect no further cuts this year while some others expect a further 1 percentage point drop in the cash rate (to 2%!).

I am far more inclined to look to bond markets for guidance and as detailed last month, the trend seems very clear – long bond yields bottomed in July 2012 and have been steadily trending higher.  The 10 year Commonwealth Government Bond yield is presently sitting at 3.54% or almost 0.80 percentage points higher than 7 months ago!  This is a pretty significant turnaround in a period when cash and term deposit rates have been falling.

My take is that we will not see further term deposit falls and there is a reasonable chance of rises before the year is out.  For this reason we are keeping new deposits shorter dated.  It also reinforces our decision to be out of bonds.

Rising interest rates are not expected to restrain the sharemarket – a focus on improved earnings and economic growth tends to outweigh theoretical pricing of assets using the ‘risk free’ bond rate – at least in the early and mid-stage recovery cycle – but let’s see how company outlook statements pan out in the next month.

The following dot points outline our view on asset classes:

* Australian Shares: Smaller companies offer better value than the large blue chip stocks;
* Listed Property: Over-valued and ready to lighten exposure on an individual portfolio basis;
* International Shares: Positive earnings and valuations and invest while $A remains high;
* Fixed Interest: Avoid bonds, re-invest new maturities on a short-term basis; and
* Cash – hold a reserve as some chance of markets pulling back after reporting season.

Best wishes,


A.W. (Tony) Gray BCom, LLB, Dip FP, GDipAppFin, CFP, FFin
Principal, TG Financial

Please treat the above comments as General Advice or general information, with no action to occur until we have considered with reference to your financial position, needs and goals.

Last Updated on Friday, 15 February 2013 14:30
 

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