Australian shares will continue to be the most investor friendly asset class in the short to medium-term according to AMP Capital Investors’ financial markets return projections for the next five years.
In particular, AMP feels Australian shares remain favourable for investors compared to the potential returns of global shares.
“Global shares to me still don’t look overly attractive. If you add up global shares you get something like 7 per cent in local currency terms and if you assume a 1 per cent fall in the $A over the next five years per annum that rises to 8 per cent,” said AMP Capital Investors head of investment strategy and chief economist Dr Shane Oliver.
“Australian shares with their higher dividend yield and higher growth potential will have a return of around 10 per cent and that’s before franking credits. So on that basis we’d still favour Australian shares,” he explained.
In relation to 2006 Oliver anticipates the top performing asset classes to be Australian shares, with a forecast return of 10 per cent, and direct non-residential global property, with predicted returns of 9.5 per cent. He believes a diversified portfolio of 70 per cent growth assets and 30 per cent defensive will deliver investors a 9 per cent return on the coming year.
The risks Oliver has identified for investment markets over the next 12 months include oil prices, terrorist activities and the ongoing US imbalances.
“America still has a huge trade deficit and a big budget deficit and that’s clearly a risk. I think the odds are though that it’ll just remain a risk,” Oliver said.
Demand for resources in emerging markets like China and India is also an opportunity that has been identified for 2006.
“A strong contender for the next investment bubble is the China and Indian emerging markets driving resource shares a lot higher and that could drive our market, at least our resources stocks, a lot higher than they currently are. So that’s like an upside risk through next year. Sooner or later that will burst, but I don’t think it will be in 2006,” he said.
