Australasia experienced less pain, can expect less gain as world recovers

Tuesday 31st August 2010

Australasian investors have experienced less pain during the global financial crisis compared to their international counterparts, but can expect less gain as markets recover according to Russell Investments’ chief investment strategist for Asia Pacific.

“We’ve had less downside, but we’ll have less upside compared to the rest of the world,” Andrew Pease said to a Wellington investment conference.

“There’s more relative investment potential outside our shores.” Pease said that because Australia, in particular, had weathered the economic downturn better than most other countries, there is a degree of optimism both sides of the Tasman compared to the extreme pessimism still observed in some other markets such as America.

And, because both countries produce a range of commodities that have increased in price “in effect we received a pay rise from the rest of the world,” he said. “The combined effect is that in complicated times, investors should keep it simple,” Pease said.

This means maintaining a diversified investment portfolio, and not over-investing in New Zealand or Australia just because both markets seem to be doing relatively well at the moment he said.

People should also observe that, according to the Commodities Research Bureau’s index, prices are only 10% below their 2007/2008 peaks.

The same people often think that China will continue with its unprecedented demand for commodities.

“But we’re picking the Chinese economy to slow, though it won’t crash and will bounce back again,” Pease said. “Don’t forget too that over the past five or six years, there’s been a lot of investment in commodity production such as iron ore and other base metals, there’s been a lot of expansion. While there’s commodity price optimism, there’s a risk in the near term of disappointment because people have been neglecting the supply side and only looking at the demand side.”

Senior Russell Investments consultant Joe Cheung told the same briefing that infrastructure assets and hedge funds are bouncing back into favour. Worldwide, alternative investment types had fallen to just over 12% of total portfolio assets in 2009, but this is expected to lift to almost 20% by 2012.

“A lot of people believe that alternative assets are uncorrelated to other major asset classes,” he said. “The theory is that even if an equity market crashes, the investment value of alternative assets will not fall with the rest of the market.”

Particularly strong are tolling operations, such as public-private infrastructure projects, where charges are predetermined and, to a large degree, recession-proof.

Businesswire.co.nz

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