Australia: a very good risk to play

Australia: a very good risk to play

11 February 2013

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Professor Warwick McKibbin is an ANU Public Policy Fellow at Crawford School. Professor McKibbin was a member of the Board of the Reserve Bank of Australia from 2001- 2011. He teaches Modelling the World Economy: techniques and policy implications (IDEC8127).

Australian assets continue to attract the world to its surging share market, according to Chair in Public Policy Professor Warwick McKibbin.

McKibbin, a former Reserve Bank of Australia Board Member, told Finance News Network that overseas buyers are behind a 21 month high in the Australian share market.

“Essentially foreigners have decided that Australia is a very good risk play and so they’re buying assets across the board. The easiest assets to buy are shares and therefore as the capital flows in a fair bit of it is flowing into the share market,” McKibbin said.

“It is unclear whether or not the rates of dividend that will go with those investments will be sustained. But clearly, Australian assets are becoming more valuable in a world where there is a lot of risk around.”

McKibbin said the expectations for earnings and dividend growth from Australian companies will be largely dependent on individual sectors.

“It depends on which sectors the companies are operating in. Certain types of manufacturing are seriously weak and so I expect the earnings of those companies to be weak.

“It’s going to be very disparate across the spectrum. My guess however, is that it will probably be more disappointing. Certainly more disappointing than the market valuations would suggest,” McKibbin said.

McKibbin added that he is more troubled about the financial outlook from Europe than he is of that from the US.

“[I am] much more concerned about Europe. The US’s problem is one of excessive monetary relaxation and excessive fiscal policy. But, the US debt is all is US dollars and the US can eventually solve their problem with high inflation. The US is fundamentally a robust single currency area. Whereas the European system is being held together by will, not by fundamentals,” he said.

The full video interview can be viewed on the Finance News Network website by following this link: http://www.finnewsnetwork.com.au/archives/finance_news_network22864.html

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