Australian Market Outlook 2013: Where Will Investors Put Their Money?

Australia In 2013

Australia will enter 2013 with relatively low, GFC-level, interest rates of 3.00 percent. An environment of lower rates can certainly be stimulatory for equity markets as investors move from lower-yielding cash holdings into stocks. However in recent commentary the RBA has played down notions of additional monetary easing, it has also not hinted at any quantitative easing measures like those witnessed in other G10 nations. This may not prove as risk-supportive as investors would hope.

In addition much of the regional focus will remain on China where growth is expected to stabilise but not return to the same elevated levels witnessed in previous years. This will not bode well for the Australian mining boom which has been tipped by forecasters to peak in 2013. A moderation in mining investment in the Australian economy may also be coupled with weak consumer spending as confidence continues to deteriorate.

Global Headwinds?

We all read the news. We all know the headlines out there. Fiscal cliff this, Eurozone debt crisis that. With that in mind, how much of an impact will these ongoing concerns have on the global economy and markets for 2013?

Forecasters expect for the extremely easy monetary policy instituted by the Federal Reserve and ECB amongst other central banks to lead to a larger flow-on effect in the real economy. Certainly in the US we have seen continued improvements in the labour market, housing and notably in asset prices. Indeed the benchmark S&P 500 index is heading for it’s 4th straight year of gains.

In the Eurozone we have seen credit markets reflect less pessimism about ongoing political disunity in the region. Yields on southern European nation’s sovereign debt have fallen quite considerably from the year’s highs. However one could be mistaken for thinking that things could be on the up and up from here. Spain still faces significant challenges in financing running costs and there is speculation that it could tap bailout funds during the first half of 2013. Additionally, expectations are for the Eurozone overall to experience nil or very little growth throughout the year.

Where will investors look to put their money?

The overarching theme for markets in 2013 is access to cheap money. This is supportive for risk assets like equities as investors seek higher returns, however the market may still be very fragmented with more stabilized growth in Asia, virtually nil growth in the Eurozone, and a more upbeat outlook for the Americas. This means the US sharemarket may continue to outperform its counterparts in Europe and Asia.