Yovich & Co. Weekly Update - 23 March 2015

Mar 23, 2015 | Commentary

Changes in Market

 

 

  

This Week’s Themes

  • After reaching another record high on Monday, the local market ground lower on profit taking in the yield stocks and very little positive news.

  • The ASX 200 finished the week with the significant 6,000 point level in sight. Indications from the Governor of the Australian Reserve Bank that interest rates may fall further spurred the market to a seven year high.

  • The U.S. Federal Reserve policy statement once again was the focus for markets. The markets lower prior to the meeting on speculation of possible interest rate rises, but ultimately, the announcement was cautious and markets once again traded towards fresh highs.

  • The theme of interest rate sensitivity throughout global markets looks to continue for as long as interest rates and growth stay low. Will interest rates rise at all during 2015 and will this cause a significant fall in equity markets? Time will tell.

  • Interest rate differentials and the prospect of lower for longer rates in the U.S and further drops in Australia saw the NZD rally significantly against the Greenback and hit a new all time high against the Aussie.

Investment News

Preferred High Yielding Stocks:

The interest rate curve has been consistently lower over the past 8 months, despite the Reserve Banks efforts by maintaining a hawkish tone in their announcements until very recently. As we are seeing in most markets, low interest rates are very supportive for equity markets for the following reasons:

  • Yield differentials between shares and cash mean that investors have to consider shares to get an after tax, real return.

  • Lower interest rate costs improve the profitability of companies that are carrying debt.

  • The cash being used to stimulate economies by Central Banks through Quantitative Easing is flowing into equity markets.

Investing in high yield shares gives the potential to make a double win. The first by getting a better income from the investment (compared to Cash or Bonds), and secondly on capital appreciation as the share price moves up on yield compression. We have seen this effect quite obviously with the Power Companies and the Listed Property Companies over the past two years.

 Listed Property Companies

 

 

 

 

 

If you are interested in any of these investments, please discuss them with your advisor and we will provide the underlying research that supports these forecasts.

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About the author



Jarrod Goodall



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