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Jan 27

Asset Class Views

Cash

  • Expectations are quite strong that short term interest rates will drop quite rapidly due to slowing global and Australian economy

Australian Fixed Interest

  • General expectations are that investors will continue to move from equities to bonds and cash due to a current environment of risk aversion.
  • Downside risks are that bond prices are at historic highs

Global Fixed Interest

  • Underweight positions are primarily value driven whereby global bond yields are at extremely low levels.
  • ING have an overweight position due to their belief there will be continued risk aversion and that the global economy will continue to be weak, thereby placing downward pressure on longer term yields

Australian & Global Listed Property

  • Despite attractive valuations, there is expected to be continued high volatility
  • Primary risks relate to property trusts continued struggle managing debt levels combined with declining asset values

Australian Shares

  • Similar story to listed property whereby valuation metrics, like PE’s, look very attractive and are at historic lows.
  • Downside risks relate to uncertainty around a lack of clarity around corporate earnings (reporting season commences in February) and the declining strength of the Australian economy.

Global Shares

  • Once again, valuation metrics, such as the PE Ratio, appear quite attractive.
  • With many of the major developed countries in recession, future company earnings are extremely uncertain thereby providing weak guidance for determining value

Alternative Assets

  • The positives of alternative strategies relate to their diversification potential and the flexibility of many of their investment strategies.
  • Unfortunately, the Madoff scandal combined with the weakest hedge fund returns in history have resulted in large worldwide redemptions and the suspension of numerous funds.

Currency

  • The Australian dollar has been quite volatile over the past 6 months and has declined by around one-third versus the US Dollar and this has provided a boost for unhedged international investors.
  • Currently the Australian dollar is trading around US66c which is 10% below its long time average of US73c. Whilst downside risks still exist for the AUD, they have diminished significantly given the massive expenditure announcements of the US and other overseas governments.
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