A bright year ahead on world markets
As the New Year dawns, some industry pundits took the time to gaze into their crystal balls. Jason Spits reports on what they saw for the world economy in 2000.
No man’s an island. Neither is any country, no matter what the map says. And, as much as Australia likes to tread its own path, its economic fate is closely tied to that of rest of the world.
As the New Year dawns, some industry pundits took the time to gaze into their crystal balls. Jason Spits reports on what they saw for the world economy in 2000.
No man’s an island. Neither is any country, no matter what the map says. And, as much as Australia likes to tread its own path, its economic fate is closely tied to that of rest of the world.
A gaze into the crystal ball as the year opens, however, reveals a shimmery picture, good news for Australia which already faces an unusual year jam packed with tax and other reforms, the arrival of GST and the excitement of the Olympics.
First off to Europe where BT Funds Management head of research Paul Durham says ongoing structural changes and a new attitude towards corporate performance will lead to increased buoyancy and a rise in investor returns.
"There has been a fever of restructuring driven by the introduction of the Euro which is causing movement of trade and funds across borders and is freeing up latent value in many companies," he says.
"The result is a clear sign of growth in Europe, around three to four per cent of GDP, with rapid profit growth of around two per cent,” he adds.
The restructuring of companies and the new pan-European openness has also brought about a changed attitude to how business should be accomplished, says JB Were & Son Investment Management chief executive officer Michael Clarke.
“There is a focus on profitability with a shift away from social issues. This has resulted in shareholder value increasing and a growth in shareholder awareness,” he says.
Faced with the similar difficulties of old style business and investment, Japan has also embarked on a drastic program of restructuring.
Tower Asset Management economist Clive Smith says Japan now leads the Asian region, largely because it began to restructure before much of the region and because it has maintained its massive wealth savings.
Perpetual Investments international funds portfolio manager Glen Howard says the rest of Asia is in much the same vibrant position as Japan (in all but magnitude) and is still busy racing up the V curve with strong currencies, rallying stock markets and returns at, or above, normal levels.
Smith says further opportunities will be fuelled by inter-regional trade and he expects a rotation in growth from the industrial to retail sectors as consumers get cashed up and once again start to take advantage of their good fortune.
Regardless of the recent dip in the performance of the US bourses and the growing emphasis on Europe and Asia, the US market can never be dismissed.
It is still the most profitable and it is reaping the rewards of the business strategies it adopted some years ago, some of which are only now taking hold in Europe and Asia.
“We see the US as expensive but not in crash territory, with underlying fundamentals in good shape for the future,” Durham says, adding that growth of three to four per cent growth could continue through to 2002.
According to Smith, there are signs of underlying stability and further growth when technology stocks taken out of the wider US market picture. “Valuations are quite good on other stocks with PE ratios around 20,” he says.
Despite their recent slides, technology stocks — the darlings of 1999 — will still be very much on 2000’s radar screens. However, it appears that there will be a shift in how they are scrutinised.
Credit Suisse Asset Management chief investment officer Tim Ryan says the new issue at hand is what technology actually does for other stocks.
“With technology and telecommunication stocks moving into banking, for instance, there is a need to know how that affects both sets of stocks. Investors need to be wary of this convergence of stocks and a possible divergence between price to earning ratios of the newer technology stocks and the older traditional stocks,” Ryan says.
Durham, however, advises investors not to ignore the world-wide influence of the sector in favour of regional approaches which, he warns, are ineffective in this area.
“Technology stocks in countries are more tied to the sector than the local economy. For example, the success of Nokia is not tied to Finland and this divergence is often overlooked,” he says.
AUTHOR
Jason Spits
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