Quick Q&A with the CEO: Are market conditions more supportive for Australian stocks – or overseas shares? Why?

Quick Q&A with the CEO: Are market conditions more supportive for Australian stocks – or overseas shares? Why?

Scott Schuberg, Rivkin CEO: As a starting point, I believe that investors should be focused on economies where nominal GDP growth is healthy and public debt is not escalating. Australia is one of those economies and, despite what I'm sure will be a nasty 2015 Federal Budget, debt to GDP in Australia is relatively mild, when compared with the majority of the G20 economies. Despite the problems suffered by our iron ore industry, we've manage to maintain between 2-3% annual GDP growth and our major trade partners experience higher-than-global- growth averages – this is quite advantageous. Falling commodity prices across the board, in a commodity-driven economy like ours, have helped cool inflation and put us in a position where we can retain accommodative interest rates and not be forced to move on interest rates before the US does, which helps us achieve a weaker AUD – these are all pretty good things. So I am in agreement that the low interest rate, low AUD and low energy environment is supportive for Australia's macro and micro economies, and certainly the share market in general.

Rather than look at an either/or scenario, however, I believe that it would be wise for investors to look at the US and the UK for a similar theme of healthy GDP growth and capped public spending. Annual rates of GDP growth in Australia, the UK and the US are all quite similar and while debt to GDP levels in the US and UK are much higher than Australia, they've stopped trending higher and this is an important step -- if your country can fund growth without increasing levels of public debt, then you're heading in the right direction.

What gives Australia a potential edge is the prospect of China being able to cap its own public debt levels and maintain ~7% GDP growth. If this can be done and its housing market can experience a soft-landing (this is hugely mixed, the housing figures out of poorer provinces are horrible, the more prosperous cities are [importantly] doing ok), then Australia's economy and its share market could be in for a disproportionately-positive run, versus that of the UK and US.

One in three Rivkin clients have exposure to international equities, chiefly US shares. So when it comes to the question of holding domestic shares or venturing elsewhere, I would recommend readers consider having exposure to both. Using cash ETFs in economies that investors like fundamentally, but are not necessarily experts on, would be wise. While it will be hard for an individual investor without a source of solid overseas share advice to beat an index, one could instead look to gain exposure to an index via an ETF, and I would suggest using fully-paid shares for this rather than any leveraged instruments to avoid the cost of borrowing.

SMSF clients in particular have had statistically-low levels of exposure to overseas shares, and we're seeing huge interest from Rivkin's SMSF clients in ETFs. Rivkin's trading platform offers a huge list of fully-paid ETFs by country & sector when it comes to share market exposure, and this is a popular way for our individual and SMSF clients to gain foreign market exposure.


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