Money Management – Aussie equities and bonds among highest in developed markets

 

By Laura Dew, Money Management

 

Despite Australian interest rates hitting record lows, the country still has the highest expected cash returns globally at 0.2%.

According to Northern Trust Asset Management, Australia and Canada both had forecast cash returns of 0.2% in 2021 compared to negative cash returns in Japan and Europe. The US and the UK both had forecast cash returns of 0.1%.

The Reserve Bank of Australia (RBA) cut rates to 0.25% in March and RBA governor Philip Lowe said that rate could persist the next three years as the country recovers from the COVID-19 pandemic, a theme seen across most developed markets.

“The firm predicts that interest rates will remain low, with the US Federal Reserve not raising its federal funds rate for at least five years. And, despite several emerging forces trying to raise inflation, it expects it to remain below central bank targets as these forces are offset by the impact of technology and automation, weak consumer demand, and a slow employment recovery,” Northern Trust said.

In its ‘Capital Markets Assumption Five-Year Outlook’, the asset manager said Australia could also expect to see the highest equity returns in developed markets at 5.8% on a five-year annualised returns basis.

The UK was a close second at 5.6% followed by Europe ex UK at 5.4% while Japan was the worst-expected performer at 3.8%. The US had expected equity returns of 4.7%.

However, the firm noted all these expectations were below the countries’ respective historical averages as a result of modest revenue growth and pressure on margins.

Five-year annualised equity forecast by country