As
we enter the 3rd week of August,
the Northern Hemisphere is on holiday and it is no surprise that the markets
are confounding investor expectations, as they are meant to do in August.
In
the current low interest rate environment, it is all about yield!
Yield
is the income return on an investment, such as interest, a bond coupon, or a
dividend from and equity investment.
Negative
yield in debt means that the holder of a bond loses money on their
investment. With the amount of debt in negative yield
now at a staggering $13tn, it is no wonder that the main driving force for
equities will be the global hunt for yield. Which in turn is seeing increased
investment into the local Aussie market.
Thanks
to years of continued investor activism, top Australian companies pay higher
dividends and help produce one of the highest yielding markets in the world.
Compared to the S&P 500, which yields about 2.3%, the yield from ASX 200
companies is attractive, resulting in foreign inflows and leading Australian
companies being included in global yield ETFs listed in the US.
…and
it’s not just equity yield that is attractive in Australia, with AAA-rated
government bonds producing significant yield when compared to negative yields
you would receive from both countries and corporates with lower ratings.
Foreign
investment in the Australian market are also having an effect on the Aussie
dollar, which is on the rise despite the RBA cutting rates to record lows in
August. This rise in the dollar, coupled with mortgage lenders not passing on
the full rate cut to borrowers, has seen the RBAs recent decision completely
wasted. If it is a weakening in the dollar that the RBA are interested in, then
they may think twice about cutting again.
Investors
will be keeping a keen eye on the Australian employment report this week for an
indication to the strength of the economy!
Important
Note: The information is general advice and does not take into account any
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