It’s been almost five years since the Lehman Brothers collapse kicked off the GFC and sent the world’s financial markets into chaos. To date there has been over $12 trillion worth of stimulus and 515 rate cuts by the world’s central banks in response to increased unemployment and negative growth. However, things seem to be taking a turn for the better: American real estate is recording positive growth; Germany is having a change of heart towards austerity; and the structural demographic shifts around the rise in the Asian middle class means consumption and demand is driving economic growth.
As we already know, Australia has had quite an easy ride during the past five years and the big question is: will this lucky streak continue? There is talk in the media about Asia slowing down and that demand for Aussie resources will fall off a cliff. As usual when you look at the facts the reality of the situation is that Australian resources are in great demand, demand that will only increase due to multiple factors including global interest rates.
As global growth increases interest rates around the world will slowly rise, especially in the US. This is great news for Australia as we currently have one of the highest interest rates in the world, and are attracting ‘hot money’, looking for a safe place to store that $12 trillion of stimulus which is in turn driving up the Australian dollar. With more countries increasing interest rates it means international investors will have multiple options to store their money, meaning less demand to deposit money in Australia and in turn a lower Australian dollar. Research from Goldman Sachs shows that when the US increases interest rates, over 75% of Asian countries record positive growth. When economies such as China’s and Korea’s are growing, their use of commodities tends to expand as well.
In summary, a lower Australian dollar and strong growth from Asian countries puts our commodities in a very strong position.
A falling Australian dollar, stable government, high quality resources and a favourable taxation environment mean that demand for Australian resources is set to continue. A strong resource economy has doubled property prices since early 2000, so further strength in resources can only have a positive effect on Australian property prices.