The US paints a grim picture of life without franking credits, and Australia could be facing the prospect of slow innovation and growth should Labor’s policy be passed, according to Fidelity Australian Opportunities’ portfolio manager, Kate Howitt.
Howitt and David Buckle, head of investment solutions design at Fidelity, expect defaults in the US to rise next year due to slowing growth and rising interest rates, and warned that the same could happen should the Labor Government’s franking credit removal policy roll out next year.
Howitt said corporates in Australia don’t engage in large buybacks because of franking credits as it’s more economically efficient to use dividends and compared using franking credits to acting as Robin Hood.
“It’s effectively stealing from the rich and giving to the poor – there’s economic incentive to invest in small innovative growth companies, and it keeps it in the listed sphere,” she said.
Buckle added that the US bond market and flattening yield curve indicates a recession is on the way in the next 18 months, and he warned that bond markets have never been wrong.
Buckle was also quite relaxed about the recent market correction and the volatility it brought, adding it was probably good news considering equity markets tend to rally in the lead...