Interesting Times in the Lucky Country

It appears that we continue to live in interesting times. Stocks around the world jumped on Monday posting their biggest one-day gains in a year as a bailout package of almost $1 trillion was announced to help stabilise Europe's debt crisis. The Australian market relinquished some of those gains yesterday as concerns about the recent Chinese inflation figures heightened concerns that the Chinese government might move to rein in growth and the potential impacts on other global economies. The markets in the US overnight held on to most of Monday’s gains which is a positive sign.

Last night’s Budget was a largely benign affair. We were warned that this would be a no frills Budget and the Treasurer delivered just that – no frills. Other than a modest tax sweetener for interest bearing accounts, there wasn’t much in it for investors as all the big ticket announcements had already been made when the Henry Tax Review was released last week. These included:

• The increases to the Superannuation Guarantee rate to 12 per cent and the $500 super contribution tax rebate for low income earners etc
• The proposed reduction in the corporate tax rate from 30% to 28%
• The imposition of a resources super profits tax

The Resources Super Profits Tax announced in the Government response to the Henry review and the resulting uncertainty is weighing heavily on the mining sector. However I expect the final legislation will not be nearly as bad as is being forecast once the mining industry and the Government hammer out the finer points.  Treasury has forecast significant economic growth over the next few years and if these forecasts prove correct all Australians will benefit from living in the “lucky country”. 

Whilst the huge amounts of government debt around the world is an ongoing concern I remain positive about the future for investors and the share market. I expect volatility will continue as the market climbs a wall of worry. However I remain invested in quality companies and suggests that investors stick to proven long term investment strategies and remain focused on their investment objectives.




Michael Lannon
Managing Director