While investors can see little joy in equities, fixed interest or residential property at the moment, the outlook isn’t all bad, says David Bryant, chief investment officer at Australian Unity Investments.
“There seems to be a lot of ‘doom and gloom’ news about markets and economies primarily because of the ongoing saga in the Eurozone, and this is affecting the confidence and reactions of investors.
“Understandably, Greece is dominating minds at the moment, but for all the wrong reasons. It seems as though the Tsipras government believed it could negotiate better outcomes than its predecessors, despite the fact that it was playing with the same cards as the previous government.
“With negotiations going down to the wire, tax rises are at the heart of the latest proposals, in particular VAT and corporate taxes.
“But it’s clear from the statistics that austerity alone won’t fix anything. Since the start of the crisis, household income and consumption has declined in Greece by 30 percent; GDP is down 25 percent; and unemployment is up from 10 percent to 27 percent.
“Long term investment with growth initiatives are required if Greece is to survive, and the European Union recently offered the carrot of €35 billion in funding for growth projects if Greece implements the required reforms.”
However, Mr Bryant said that despite the tense negotiations in Greece, investors shouldn’t feel too discouraged about markets.
“Things are looking much better in the major economies of the USA and Europe.
“Generally speaking, the Euro zone seems to be finding its feet. The 0.4 percent growth in GDP in the last quarter is well-balanced between consumption, exports, public and private, which is a positive sign.
“Meanwhile, the US continues to motor along, with job openings hitting 5.4 million – a record since data started in 2000. Durable goods (+0.5 percent), capital goods (+0.3 percent) and new home sales (+2.2 percent) were all up in May.
“Small business confidence there is also close to its post GFC peak, and trade sales were up 1.6 percent in April.
“The prospect of an interest rate lift-off continues to strengthen in the US, with the main question being whether the Federal Reserve will use 0.1 percent rate increases instead of the more usual 0.25 percent increases so it makes a start, but doesn’t spook the market.
“Even in Australia, things are looking up. Employment rates are slowly improving and the ASX has had a decent rally into the last weeks of the financial year.
“For Australian investors, this suggests that international equities should remain strong in the medium term and that Australian equities are likely to rebound.