After a period of intense focus on a project which will completely transform Sydney’s CBD and South East sector (you might hazard a guess at which project this is…) it’s good to have an opportunity to lift my head and take a 50,000 foot view of where economic circumstances in Australia are at. So with the caveat that this article contains observations of a personal nature that do not constitute investment advice……
Sometimes you might find that the daily news cycle can be a little misleading.
You may be surprised to note that after a prolonged period of sideways movement following the GFC in 2008, the ASX 200 is well into a multi-year growth cycle that commenced in 2012 (as illustrated by the chart above). And where the ASX goes, the economy generally follows soon after. This trend is reflected in key market indicators world-wide.
Of course, growth rarely happens smoothly and there may be hiccups along the way, most notably as a potential consequence of the recent and significant falls in commodity prices arising from increasing global supply and decreasing demand from China. It would be a great outcome for our local economy to smoothly transition from resources driven to manufacturing and services led. It would also be helpful for most if the property “boom” in Sydney and Melbourne in particular was to gradually run out of energy rather than end abruptly.
A recent Sydney Morning Herald article by Malcolm Maiden provides some useful guidance regarding the likely direction of interest rates – a key indicator to keep a close eye on.
As another telling indicator of what the general business community is feeling – or at least what the media believe the business community is feeling…..a quick look at last Friday’s edition of the Australian Financial Review revealed that the ratio of “bad” to “good” news stories is more than 3:1. The generally accepted rule of thumb is that the economy is half driven by market fundamentals and the rest by investor confidence.
So in broad terms, now is the time to be investing in building business with the potential for medium to long term growth. As ever though, it will be necessary to be focused on the horizon rather than the waves ahead.