The front page of The Financial Review this morning shows the ANZ Chairman, David Gonski, cautioning investors against chasing high yielding stocks like his own company. ANZ shares are now trading at $37.19, up 16 per cent for the year alongside many other stocks which are also feeling the boost. The recent interest rate cut certainly has shifted the gears of the share market, and with so many people reliant on income that they can no longer generate from cash rates, it seems risk is well and truly on the table.
It is widely expected but also significantly concerning to many investors, particularly more mature ones that there could be another rate cut this month when the Reserve Bank meets. Australia sadly appears to be wagging the tail of the global dog that has been cutting rates heavily since the GFC to try and reignite economies, and just like in all other things… it seems it is our turn last in the world. But in a speech at an AFR hosted event yesterday, global investment leaders were cautioning against further rate cuts saying the heat is getting too great.
Traditionally, cuts in interest rates below the yield levels needed by people to live on in comfort send them flocking for riskier assets, as many here would no doubt be seeing. People reliant on income generating assets rather than jobs for their stability frankly need the income, especially if the employment market is restrictive to them as it is for so many over 60s today.
And you, who have seen environments like this in the past know that when rates are cut, risk assets go to the races, while folk look on from the sidelines complaining about how hot it is getting, but powering anyway.
Tell us today… Do you think it is getting too hot in the stock market and other risk assets, or is the economy just starting to show signs of higher returns on investment in the future for companies?