Australia is among the best countries in the world to be protected from the global banking crisis fallout, according to Fidelity Australia’s head of investments, Paul Taylor.
Speaking at an adviser event in Sydney, Taylor, who was head of investments for Australia and portfolio manager for the Fidelity Australian Equities fund, said Australia was largely immune from the wider global issues.
This included the collapse of Silicon Valley Bank in the US and the failure of Credit Suisse in Europe, which had since been acquired by UBS.
“I wouldn’t describe it as immune, but we are well-protected. We are probably in one of the best positions in the world.”
This was mainly because Australia had a very different banking system that was led by four key players in CBA, NAB, Westpac and ANZ rather than a large volume of smaller players.
“We have a very different banking system here; the US banking system is very fragmented with a lot of small regional banks and there are different levels of regulation between the bigger and smaller players,” said Taylor.
“In Australia, it is a highly concentrated market and they are highly regulated financial institutions. We have almost double the capital requirements of the global standard so the banks are in strong shape. They have incredibly strong capital.
“As you saw with the Global Financial Crisis, banks performed very strongly then. You’re never immune, but they are in the best position they could be.”
Referencing asset allocation decisions, he said there was a “disconnect” between equity and fixed income credit markets but stopped short of forecasting a recession.
“Credit markets are saying we are where we are at and are going to have to go the other way, whereas equity markets are expecting more interest rate rises coming through. And that’s a really interesting dynamic, as what that does is mean expectations for 2023 are for a slowing Australian economy.
“At the moment, there are no expectations for a recession, but definitely expect a slowing. If interest rates do have to go up further because inflation is a continuous issue, then there is a risk of a recession and something we need to think about as a risk to markets.”
