Equities as yield; Aussie dollar the new safe haven

Investors concerned over share market volatility should look at equities in terms of yield as a tax-effective income stream, while the current global economic environment may have led to the Australian dollar becoming a new safe haven asset, according to Tyndall.

Tyndall deputy head of equities Warwick Cumming said that when franking credits are included, many stocks are providing yields as attractive as other more traditional income-providing asset classes, and many stocks are offering excellent growth potential at current prices.

The twin search for yield and growth requires discipline because companies paying dividends at the top end are not necessarily the ones who have the best growth prospects, he said.

Tyndall has also presented a whitepaper that noted that since the onset of the global financial crisis the Australian dollar has become far less positively correlated to global share market movements and commodity prices than it has traditionally been.

The dollar held up well in the face of European sovereign debt woes and a weakening US economy, partly due to a strong local economy and Asian demand for Australian exports, and also because the US woes have led other central banks to increase their holdings in other currencies, the paper stated.

Long term this could mean the Australian dollar becomes an alternative safe haven asset, according to paper author Roger Bridges.

But the Australian dollar will probably fall if anything upsets world growth, such as Greece leaving the Eurozone, and will also become less attractive if the Reserve Bank of Australia decreases the cash rate, Bridges warned.