The optimism being shown by the equity markets (particularly cyclical stocks) in a rapid acceleration of economic growth seems premature to say the least. The fact is that the brakes dampening the global economy are predominately structural. The United States’ growth outlook (in real terms) remains more or less constrained by the rather immutable trends of slow growth in the available workforce and weak productivity. The measures taken by the new US administration will only be felt in the longer term, assuming that these measures are conceived intelligently enough to have a positive multiplier effect on growth. But if poorly conceived, these measures could have the inverse effect and exacerbate the slowdown in global trade and geopolitical instability.
If the economy slows further and bond yields decline, the sector rotation in favour of value stocks at the expense of quality stocks will come to an end and go into reverse. Independently of this, the economic uncertainties and the asymmetric risk / reward profile of value stocks continue to advocate investing in companies with low debt, that have good earnings visibility and are capable of maintaining a competitive advantage in their sector, even if this might mean enduring periodic phases of underperformance.
Too much of the focus in property investment is on saving tax – when really it’s a small part of your overall return. This isn’t surprising given so many property investment companies rely on selling the tax benefits of new property. The real money to be made is in capital and rental growth, and unfortunately properties that offer lots of tax deductions frequently offer precious little growth.
Want to buy a detached house for under $500,000, on a big block within 30 mins of everywhere on the Gold Coast? Nerang boasts excellent investment fundamentals, with low supply, good owner-occupier demand, excellent rental yields and low vacancy rates. It has great access to infrastructure and is beginning to gentrify, as new families move into the area attracted by convenience, amenity and price.