Most Australian businesses will be negatively affected by the recent floods but the main areas of impact are in coal mines, transport, insurance companies, agriculture and tourism, according to fund manager Fidelity.
Insurance companies were likely to experience a significant increase in claims Fidelity warned, although most have capped their exposure by taking out catastrophe reinsurance from major international reinsurance companies.
However, Fidelity said it was important to note that the negative economic impacts were expected to be temporary.
Furthermore, the fund manager said the ensuing clean-up and rebuilding phase will help drive the economy for years to come, with Australian engineering, construction, building products and mining services companies likely to be running at full capacity throughout this period.
Commodity prices were also likely to remain very strong as supply constraints, combined with continued strong demand from China and emerging markets supported continuing high prices for Australia’s coal, iron ore, copper and other minerals and agricultural products.
Fidelity said the continued higher commodity prices would also stimulate the economy and Australia’s terms of trade over the longer-term.
Paul Taylor, Fidelity Australian equity fund portfolio manager, said from an equity market perspective, the Australian stock market continues to be very attractively valued.
“In combination with Australia’s strong fundamentals of high population growth, good corporate governance, high dividend yield and high real dividend growth, the prospects for favourable market returns remain high,” he said.
“These structural long-term fundamentals have supported the Australian equity market’s performance for decades, delivering a nominal return of about 12 per cent per year through all conditions.”
