Investment portfolios should have be overweight in international equities and underweight in Australian equities on a two to three year time horizon, a panel representing leading investment experts said.
Jeremy Lawson, chief economist, Standard Life Investments argued that the risk-return basis of Australian equities were not attractive when compared with other international equity markets, particularly if China underwent a shock the equity market would probably not be cushioned by a lower Australian dollar.
Taking signals from the falling Australian dollar John Hock, founder and chief investment officer of Altrinsic Global Advisor believes that further bad times are ahead and bank and resources stocks will probably fall as a result.
While the panel was heavily in favour of international equities, opinion was divided on which markets invested should be made into with the US being the major point of division.
“Quick tip, don’t caught short in the USA, it could flip 50 per cent very quickly,” Vimal Gor, head of income and fixed investment, BT investment management said. “The bond yield curve flattening is indicative of a recession.”
Ronald Temple, managing director and analyst at Lazard Asset Management, was in favour of US equities noting that it is currently the international market of choice. Some agreed the US was good, but that it was about stock picking and alpha rather than beta.
“If quantitative easing and the Fed fail, will we realise that central banks are not omnipotent?” questioned Charles Dallara, executive vice chairman board of directors, Partners.
Europe, Asia and Japan are the places to be according to both Joe Bracken, principal, Tempo Asset Management and Tracey McNaughton, head of investment strategy, UBS Global Asset Management. While structural reform is needed in Europe and Japan, if it is postponed, the accommodative monetary policy could buoy the equity market in the short term, Scott Weiner, managing principal, Payden & Rygel said.
Three of the sixteen member panel disagreed with this point arguing that being overweight in Australian equities was the preferable choice, even given a slowdown in China’s hunger for natural resources. Kate Howitt, portfolio manager, Fidelity Investment said that as China moved to a consumption oriented economy their middle class will create a higher demand in Australia in both the education and tourism sectors – the second and third largest exporter economies in the country.
She also argued that franking in Australia was better suited than most to a global low growth environment where yield is valuable, again making Australian equities attractive.
Both geo-political concerns and stock-picking where put forward as of factors to consider as the interdependence and complexity of markets, and the world at large, continues to increase. The panel advocated a growing need for granularity in this environment.
Neeraj Seth, managing director, head of Asian credit, BlackRock, summed up the choice in equity markets with this analogy: “There is fish and chips one side and on the other a continental buffet with some foods that are delicious and some not.”
Panel Members:
Bruce Campbell, investment chairman, Pyrford International (London)
Charles Dallara, executive vice chairman board of directors, Partners Group (Washington DC)
Erik L. Knutzen, managing director and chief investment officer Multi-Asset Class Portfolios, Neuberger Berman (New York)
Jeremy Lawson, senior international economist, Standard Life Investments (Edinburgh)
Joe Bracken, principal, Tempo Asset Management (Sydney)
John Hock, founder and chief investment officer, Altrinsic Global Advisors (New York)
Kate Howitt, portfolio manager, Fidelity Investment (Sydney)
Neeraj Seth, managing director and head of Asian credit, BlackRock (Singapore)
Nick Langley, co-chief executive and co-chief investment officer, RARE Infrastructure (Sydney)
Rob Mead, head of portfolio management Australia, PIMCO (Sydney)
Ronald Temple, managing director and analyst, Lazard Asset Management LLC (New York)
Scott Weiner, managing principal, Payden & Rygel (Los Angeles)
Tai Hui, managing director and chief market strategist Asia, JP Morgan Funds (Hong Kong)
Thomas Poullaouec, managing director and head of strategy/research Asia Pacific, State Street, (Hong Kong)
Tracey McNaughton, head of investment strategy, UBS Global Asset Management (Sydney)
Vimal Gor, head of income and fixed interest, BT Investment Management (Sydney)
