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The money trail for 2012

Christine St Anne  |  16 Nov 2011Text size  Decrease  Increase  |  
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Christine St Anne is Morningstar's online funds and ETFs editor.


The relentless news about European sovereign debt, lacklustre global growth and persistent reporting about market falls has steadily eaten away at any hope of a Christmas rebound.

Investors can be forgiven for thinking that the only option now would be to stash their money under their mattresses.

For those in the money game, there is no quick exit. But despite the gloom, a number of managers are seeing opportunities.

"No matter how dire markets are there is always opportunity," Morningstar head of equities research Peter Warnes said at a recent Property Council of Australia lunch.

Warnes was speaking on a panel that included PIMCO head of wealth management Peter Dorrian and Investa group executive Michael Cook.

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The theme behind the event was to look at the money trail for next year amid the maddening world markets.

For Warnes, Australia is one of the few places investors can get compensated for any equity risk.

"Australia has very robust terms of trade, an investment boom in infrastructure and the resources sector, a competent monetary policy, and a manageable level of debt. Our companies have good balance sheets and we are attached to the epicentre of positive growth that is China," Warnes says.

Warnes continues to like companies with sustainable dividend yields, such as Woolworths (WOW) and Wesfarmers (WES).

He acknowledges Australia may be too exposed to China, but also notes the continued growth in India that provides Australia with another growth prospect.

"Let's not forget that India is 15 years behind China. With a huge population, it has a hell of a lot of buying power," Warnes says.

As an equity researcher, Warnes obviously prefers equity to debt transactions, noting that while Telstra (TLS) managed to successfully raise 470 million euros in debt in two hours, at 3.5 per cent "you might as well invest in the stock and get a 9 per cent yield".

PIMCO's Dorrian has a slightly different view on bonds, believing 10-year US Treasury bonds at 2 per cent are an appropriate investment.

"Sitting in Australia, these bonds are still an appropriate investment on a fully-hedged basis (in Australian dollars). Investors can still pick up the interest rate differential. In the US, interest rates are effectively zero and in Australia they are 4 per cent, so investors are essentially getting 6 per cent yield," Dorrian says.

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