Australia will see diminishing GDP growth in 2013 on the back of a slowing mining boom, according to Russell Investments.
With the two-speed mining-driven economy merging into one, it is likely the domestic economy will face several headwinds in the New Year and very few tailwinds.
“We’re now beginning to see a reversal of the rising incomes and growth supported by booming commodity prices, as evidence in declining nominal GDP growth,” Russell global head of investment strategy Andrew Pease said.
“For 2013, we expect real GDP growth may end up between two and 2.5 per cent. Also, it’s unlikely the government will achieve its fiscal surplus target, despite pushing ahead with the largest fiscal tightening since 1970.”
Other factors which will impact GDP growth include declining terms of trade and the strong Australian dollar.
Despite the lower GDP growth, the asset manager also forecasts a domestic market trend towards high yielding equities, as investors demand real returns on their assets.
As of early December, Russell’s composite value indicator put the Australian share market at around one quarter of a standard deviation undervalued, or seven per cent undervalued.
“We think the market will struggle to close this undervaluation gap during 2013, but the market will be supported by strong dividends, which are likely to provide better yields than those available through term deposit rates,” Mr Pease said.
The trend towards high-yield equities will be experienced globally, as the dynamics of a US market recovery, lingering impacts of the global financial crisis and intervention by the US Federal Reserve has a net effect on investors.
These global factors will move investors from traditional safe-haven assets towards risky investments.
“For investors, this means attention to every detail of their portfolio management,” Mr Pease said.
“We believe regional diversification will need to be firmly in place, as the economic centre of gravity will continue to shift.
“And volatility – while it certainly brings market stress – will also bring market opportunity for multi-asset, adaptively-managed portfolios.”
