Australian investors should be patient with their domestic share investments as the Australian dollar continues to hold strong against world currencies, according to fund management and research firm Lincoln Indicators.
While plenty of Australian companies are likely to be hit by the spike in the Australian dollar, which opened lower today after hitting another 23-year high overnight, Lincoln urged investors to maintain a long-term perspective with domestic share investments.
While currency fluctuations are significant, particularly for Australian exporters, Lincoln director and head of Stock Doctor Research Elio D’Amato said more important were the underlying, long-term performance and financial health of a company.
Recent lofty levels in the Australian dollar are largely a reflection of weakened US share market performances and dampened appetite for high interest rates. And Federal Treasurer Peter Costello’s election announcement of $34 billion tax cuts over three years has also fuelled expectations of further Australian interest rate rises.
D’Amato said immediate global macro-economic trends must be measured against longer-term investment considerations. However, with potential for the Australian dollar to maintain its current high valuations, D’Amato urged investors to keep an eye on emerging opportunities.
Importers are in a strong position to benefit, according to D’Amato.
“The retail sector in particular will see profit margins increase,” he said before listing companies, including JB Hi-Fi, Just Group and The Reject Shop, which are all likely to benefit from a sustained high Australian dollar. These companies have strong earnings growth, sound financial health and relatively low valuations, putting them in an already positive position, and Lincoln urged Australians to look for these factors when investing.
On the other hand, companies likely to be adversely affected by the sustained high Australian dollar are those with dual listing on the Australian market as well as the US. Among these companies is News Corporation, as the majority of its NSW shares are traded on the US stock market.
