Money Australia - August 2019

COVER STORY

WHEREI WOULD

INVEST$10k

GOFRAN CHOWDHURY
HEAD OF INVESTMENT
SPECIALISTS, CITI AUSTRALIA

▲GOFRAN CHOWDHURY^ AUSTRALIAN EQUITIES

W

hen looking at the next three to five

years, the one certainty is that we are

facing a period of global uncertainty. In

this environment it is important for investors to

focus on a diversified asset allocation to protect

their portfolios from market shocks.

O ver recent mont h s Aust ra l ia n equ ities have

outperformed and it’s Citi’s view that dovish

noises from the Reserve Bank will support the

economy and market. However, we remain

underweight and we caution Citi’s wealth man-

agement clients to be selective when considering

investment opportunities in Australian equities.

There are often better opportunities in global

markets, including the US and UK. Currently,

Citi particularly likes the healthcare, materials,

energy and IT sectors in those markets.

If we do look at opportunities within Austral-

ian equities, Citi is most positive on the banking

and mining sectors.

Looking at banks – post the royal commission

and the federal election – we seem to be enter-

ing a period of more stability and certainty for

this sector. The recent Reserve Bank rate cuts,

coupled with an accommodative APRA policy,

may also mean the housing market could turn

around more quickly than expected.

As mortgages are a big part of the banks’

revenue share, this will drive their profitability.

Fu r t her more, low i nterest i n ter m deposits a nd

savings accounts may push investors to seek yield

through high-dividend-paying banking stocks.

The mining sector is another growth opportunity

for investors. The Australian dollar is sitting at

quite low levels, which makes our miners more

competitive in the global marketplace. Further

potential monetary and fiscal stimulus in China

to offset any negative impact of a trade war could

also mean more infrastructure spending and

demand for Australian resources.

T he m i n i ng sector is a lso a n option i nvestors

should consider for its sustainable dividend

payout ratio. Compared with other high-yielding

sectors, resources have more sustainable yields

due to their strong balance sheets, which is an

attractive quality in times of uncertainty.

Today’s market is characterised
by volatility between the US and
China, a slowdown in Europe
and over-reliance on central
banks. In this type of environ-
ment, interest rates are going
lower and lower, both globally
and locally. Unfortunately, this
means it can be hard to make
$10,000 work hard for you.
I would firstly suggest using
the money to pay off any debt
or, if you have one, putting
money in an offset account
to reduce your mortgage
payment and tax.
If this isn’t right for you, my
next suggestion is to consider
bonds. I think bonds are a for-
gotten, or at least poorly under-
stood, asset class in Australia.
For the most part local investors
only consider equities, property
or term deposits. However,
bonds are a valuable asset in
times of uncertainty and can act
as a “shelter” for your portfolio
while paying a regular income.
Furthermore, you may also
get a capital gain if the interest
rate continues to go down. With
term deposits paying 1%-2%,
corporate bonds will give you a
similar amount of security while
offering 3%-5% in income.
To prove how popular they’ve
been, at Citi we’ve seen our
bond volumes almost triple in
the past year as our investors
move to this asset class. In fact,
with rising global uncertainty
and expectations of further rate
cuts, Citi has seen more bond
transactions in 2019 than in
2017 and 2018 combined.

What sectors show the

most potential for growth

in Aussie equities over the

next three to five years?