One of the big surprises of 2010 was that Australian equities underperformed the US equity market, according to managing director of Kapstream Capital, Kumar Palghat.
Speaking at the Portfolio Construction Forum in Sydney, Palghat said the surprise came due to the dire state the US economy was currently in, carrying a national debt of $13 trillion. He said that the announcement to reduce the deficit from 10 per cent to 3 per cent of their gross domestic product (GDP) was optimistic, and outlined a grim 2011 outlook for the US.
“I don’t believe the US economy is going to take off. They need to reduce the deficit by higher taxes and lower spending, which is difficult to achieve,” Palghat said.
He added the European debt crisis got deeper and equities outperformed bonds, which also startled investors in 2010.
In terms of the domestic outlook, head of investment management at Western Asset Management, Anthony Kirkham, said Australia was in a healthy position.
Kirkham told the Portfolio Construction Forum that GDP growth returned to 3-3.5 per cent and that inflation was to remain within target band of the Reserve Bank of Australia.
“RBA will begin tightening its monetary policy not in the first half, but in the second half of 2011,” he added.
