Investors need a more diversified investment approach to safeguard returns amid the present global de-leveraging and the possibility of entering a recession.
Wingate Asset Management chief investment officer Chad Padowitz said global economies were only going to become more volatile and the rate of upward trends would slow considerably.
“Basically because we’ve had 50, 60 years of global leveraging, you’ve had a lot of excess money pushing up asset prices – shares, property, business valuations,” Padowitz said.
“So the current state of global de-leveraging will mean less money will be around as debts and money supplies will be stagnant or decrease.”
He said as asset prices therefore had less support, it would mean lower asset prices for investors as well as lower inflation.
“Financial planners and everybody else have to be conscious of not looking at what happened in the last 10, 20, 30 years and extrapolate. That could be the biggest risk they can make,” he said.
He said investors could manage inherent risk by avoiding anything with leverage and diversifying within asset classes.
“Things are only going to get tougher in Australia [and] for quite some time because effectively we’re a higher leveraged society at the consumer level and [have a] very high reliance on China, which is probably also going to have some level of slowdown,” he said.
“Those things, the global crisis, and what’s now happening, I don’t think Australia is immune.”
He said most investors were “burnt” in 2008 and to a fair extent the repercussions of that were reflected in current market valuations.
“There’s certainly risk in the banking sector as that’s the most leveraged sector of the economy so that’s where you have to be most careful, but there’s also, arguably, more opportunity there,” he said.
