Australian Unity Investments CEO David Bryant has said investors may need to look off-market to generate good returns in 2016, with the Australian equity market expected to remain "lacklustre".
“It’s been a fairly flat year on equity markets with not much to show over the past 12 months. All indications are we are in for more of the same in 2016," Bryant said.
Bryant said Reserve Bank governor Glenn Stevens had "hosed down" expectations of economic growth in the year ahead.
"In this environment the focus of investors will increasingly be on how to generate yield. With low commodity prices and less demand out of China it is fairly safe to assume that we’re not going to have an outstanding year for growth. Therefore, we can expect Australian equity returns to be muted in 2016. Investors are going to have to turn their minds to other sources of yield. This is especially pertinent given the outlook for interest rates," he said.
Bryant said the RBA is not expected to raise rates in 2016, and that it could actually cut rates in the year ahead. Meanwhile, the US Federal Reserve is expected to make its long-awaited move on rates.
“When this happens we will see a lot of things recalibrate. We can expect some short-term volatility once the interest rate increases start, but it will be the commentary from the Fed that will be critical in setting the path for the next year.”
A US rate hike would mean even more softening for the Australian Dollar, Bryant said. In light of this, banking shares could face challenges in 2016.
“This potentially leads investors to property – both listed and unlisted. In this market, the best value is likely to be found in unlisted property, where revaluations haven’t always kept pace with what is on market," he said.
“This is unlike the case with listed property trusts, the majority of which are trading to a premium - in some cases quite a significant premium of up to 20%. As well, listed property tends to rally along with equities and other interest bearing investments on market, so off market is likely where the opportunities will be in 2016.”
The chief of a fund manager has said Australian equity markets are expected to remain weak in 2016,