When the World Bank basically said that we could be heading for financial crisis II, it got a lot of people thinking about doom and gloom scenarios. After all, the World Bank predicted a slump in commodities prices and lowered its forecasts for global growth. But you have to put the World Bank into perspective.
It seems Australian investors did. Shares in the domestic market closed at a five-week high, as investors increasingly adopt a “risk on” perspective – but more about that a little later.
Basically, the thing to remember with any reports by the World Bank is that they are written three months prior to their release – they involve getting sign off from member countries, and there is a lot of bureaucracy involved.
More to the point, the markets are the best indicator for where underlying economies are at: not the discredited credit ratings agencies; and certainly not the World Bank.
The World Bank’s agenda is that it is the banker for the emerging countries of the world. It’s trying scare the developed world into getting its act together, so that it doesn’t have to get financing if the spreads blow out in emerging country bond rates (which they already are in the case of places like Spain).
Economically, Australia is one of the strongest countries in the world, on a per capita basis. This was confirmed in today’s unemployment numbers, showing the rate remaining steady at 5.2 per cent – compare this to the 8.5 per cent of the US, 8.2 per cent in the UK, 20 per cent of Spain.
But we all know that if the proverbial hits the fan, Australian equities will get carried off in a casket like everywhere else.
The thing is, investors don’t think this is happening.
Last year the theme was all about income and yield, or “Risk Off” trades. Telstra and other big dividend players were the big performers.
This year, so far at least, the trend is for “Risk On”, which means anything that can deliver growth. This includes Small Caps, but also includes commodities based investments, and currencies.
The return of the Top 50 companies this year is just under 4 per cent WHEREAS the Small Ords is so far up 7 per cent.
The small ords has been led by energy stocks, which is understandable considering the rising price of oil resulting from tensions between Iran and the United States.
The message for Under the Radar Report subscribers is: Don’t panic and keep believing in growth and dividends from little companies going places, which are in Radar’s Small Caps newsletter. You just have to read our Stock Tips, and Fundie Recommendations.
Making money is never easy, and you’ll never make it if you panic.