While jitters over the prospect of another global recession abound, investors are exercising extreme caution with their money in 2016. Some are taking advantage of fluctuating currency valuations on the foreign exchange market, while others are putting down small deposits for a much larger market exposure with CFD trading. However, the vast majority of investors are making sure they avoid the following:
Potential property “hotspots”
Rather than trying to identify potential “hotspots,” property investors are being urged to base their decision on supply and demand instead. “The problem with any forecast is trying to sum up the direction of a diverse range of property markets into a single figure or hotspot,” says Rich Harvey, president of the Real Estate Buyers Agents Association of Australia (REBAA).
He also believes that investors should think local within a smaller zone and at a suburb level. “While the overall predictions give you some comfort that property is a good asset class, it is far better to think long-term and become an expert in the local housing market and make informed decisions accordingly,” adds Harvey.
The resources sector
Due to plummeting earnings and a global shift towards reducing carbon emissions, the resources sector could be in for a tough time of things in 2016. What’s more, the mining infrastructure and commodities boom in Australia looks like it has finally come to an end.
As the world moves away from fossil fuels, investors should avoid energy and coal businesses like Santos, South32, and Whitehaven Coal Limited. Short-term oversupply issues mean these firms will stay under selling pressure too.
Even though the Aussie dollar has defied forecasts that it would drop this year, there is evidence to suggest a structural shift for the country’s supermarket sector looms, with shoppers being more frugal with their money. In 2015, Woolworths Limited flagged the potential for profit to be down as much as 28-35 per cent for the first half of this year.
On top of that, stronger competition from more affordable alternatives such as Aldi and Costco, both of which have plans to ramp up expansion in 2016, threaten to topple industry stalwarts. Household spending might be on the rise, but that doesn’t mean to say the supermarket sector is where nailed on profits exist.
In addition to the bankruptcy of Vocation Ltd, other professional education and higher-qualification enterprises such as Navitas Limited and Academies Australasia Group also witnessed significant share price slides in 2015. While this was due in large part to regulatory pressures and greater scrutiny, things don’t look like they will improve for the coming months.
Education investors will be closely monitoring the performance of IDP Education though to see whether it can not only survive, but also thrive as a public company.
So where should you invest your money in 2016?
If US equity markets and the UK economy continue to enjoy growth, then fund managers such as Macquarie Group and Magellan Financial Group should offer impressive returns. Growing demand for internet-focused services could see tech firms like Superloop and Megaport also do well.
In a research note, investment bank Morgan Stanley identified 10 stocks best placed to capitalise on Australia’s economic readjustment too, which some are calling the “Great Transition.”