Money
Issue No. 9 - February/March 2003
Outlook for 2003
Times are Changing
by Tony Catt
Stockmarket Performance
The S&P/ASX200 Index fell 12.1% over 2002, the largest annual decline since 1994. Information technology and healthcare were the worst performing sectors whilst the strongest performance came from the more defensive sectors of property trusts, utilities and materials. On a global scale, Australia significantly outperformed the major markets over the year as measured by the MSCI World ex Australia Index (—27.4%) given a buoyant economic backdrop supported by strong housing sector activity.
Economic Outlook
Consumer spending is key to the near—term outlook for the US. Mortgage refinancings, high income growth and low interest rates give cause for hope, but the risk is that the US consumer runs out of steam before the corporate sector kicks in. We forecast the global economy to grow by just over 2%, led by the US and emerging Asia, with Europe and Japan, the lagged economies.
Domestically, with corporate profits improving, the outlook for business investment appears promising. Retail sales momentum slowed over the second half of 2002, but healthy income growth, low interest rates and the still considerable housing construction pipeline should sustain household spending for some time yet. We forecast domestic GDP growth of 3.5% for 2003 falling to 3.0% for 2004, given the expected unwinding of current excesses in housing. A prolonged global downturn, a persistent drought and a sharp decline in house prices are the most significant downside risks to Australia’s growth forecasts.
Domestic Equities
We expect the Australian equity market will continue to take direction from global markets and we are forecasting a return in the region of 6% for 2003. On balance, we favour growth over value/yield and our strategy continues to overweight cyclicals through exposure to media as opposed to diversified resources. We believe the media sector will benefit from the turning advertisin...
