Transcription of Finance News Network Interview with Commonwealth Bank of Australia’s (ASX:CBA) broking arm CommSec Chief Economist, Craig James. Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me from CommSec for an outlook on the year ahead is Chief Economist, Craig James. Craig, welcome back to FNN.
Craig James: Thank you very much for having me.
Lelde Smits: After losing 14.5 per cent in 2011, the S&P/ASX 200 lifted over 2012. Was it a better or worse performance than you had expected?
Craig James: We’ve looked back over our forecast and it’s been pretty much spot on. That doesn’t mean to say we got all our forecasts right but in terms of the share market it’s ended up pretty much where we’d expected. We hadn’t expected investors to really jump into the deep end in terms of shares.
Lelde Smits: And where do you see the key index trading over 2013?
Craig James: Well we’re looking for 4,900 points by the end of the year so I suppose when you’re comparing it to 2012 it will be pretty much the similar sort of performance. The other thing we stress, and we stressed last year, is it’s not just all about where the index is going but it’s about where total returns are going.
So last year we had a good year in terms of dividend yields, up around about 4.5 per cent, we’re looking for a similar sort of gain in terms of dividend yields and that’s the important thing for investors. Don’t just look at the capital appreciation but also look at where dividends are going, what the total returns on your investments are likely to be.
Lelde Smits: With interest rates now at GFC-lows, Do you foresee the Reserve Bank of Australia [RBA] will continue to cut in 2013 or should we be preparing for monetary policy to tighten?
Craig James: Well I think we’re going to get a bit of both. I think in the first half of the year the risks are skewed for the Reserve Bank to cut interest rates again. Not we’re not expecting it but we certainly do understand that the global environment hasn’t been fixed, particularly at the advanced nations, and there is some downside risks in terms of our interest rates.
But, I think the Reserve Bank is going to a reluctant rate cutter and provided that the US economy, Chinese economy recovers as we expect, Reserve Bank will stay on the interest rate sidelines. Once we get towards the end of the year I think we are going to see the Reserve Bank not wanting to leave interest rates at super low levels, and we could see the cash rate at 3.5 per cent at the end of 2013 rather than 3 per cent at the end of last year.
Lelde Smits: Ok Craig, now looking closer at the sectors. Which sectors notched up the best performance in 2012?
Craig James: Last year was quite interesting- We saw the property trust area, the real estate area that rebounded from the lows- I suppose that had to happen- you know they were significantly down over the previous couple of years so I suppose the degree of improvement was to be expected. We saw some good gains in health care, pharmaceuticals and bio-technology, the telecom sector lifted so some of the more defensive areas did well over 2012. The banks generally did ok as well, so it was a much more defensive year. I think 2013 could be a fair bit different.
Lelde Smits: So how do you expect it will be different?
Craig James: Well I think over this year we are going to see investors starting to move back into the mining, the energy sector, the general resource area- consumer discretionary type stocks. Taking on a little bit more risk, focused on growth rather than focused on defensive areas. So, I think it’s going to be a good year for the mining, the energy type areas.
Consumer discretionary- interesting one- retailers and media have their challenges but there’s some smaller stocks, particularly those focused in terms of internet sales that have the potential to do well.
Lelde Smits: You mentioned you see strength in the mining sector, though last year was dominated by headlines calling the end of the mining boom. What factors do you think will this year drive growth in the sector?
Craig James: Well I think the miners are going to be successful in getting their costs down. So, they’re attacking that at present and I think over this year we are going to see the miners achieving some success; we’ve already seen some of the wage costs coming down.
We’re going to see investment and production moving at more sustainable rates and that’s going to be encouraging as well. We do look for the Chinese economy to recover further over this year. I think maybe there’s a bit of a surprise, we may see some upward pressure in terms of prices.
But overall I think the global environment is going to be better, the miners are going to have a better control of costs and really got to remember in terms of China, we’ve only just started down the road of development; they’ve got 1.3 billion people demanding our resources. So I think we are going to see some good gains for miners for a long term rather than just this year.
Lelde Smits: Now Craig with a New Year generally come New Year’s resolutions: What’s the best piece of advice you could give investors looking to grow their investment portfolio this year?
Craig James: I think there’s only one piece of advice- diversify, diversify, diversify- that may be three pieces I don’t know but you know I think it’s a case of not putting all of your eggs into one basket. You go back to 2009 when seemingly the world ended with the Global Financial Crisis back in March 2009. If people had’ve sold out of their shares, reduced their shares and their superannuation holdings, they would have missed out on something like 70 per cent return since that period of time. So I think it is always a case of having a disciplined strategy; Have some of your money in cash, some of your money in shares, some of your money in property You know, look across the board.
Lelde Smits: Craig James, thank you so much for your 2013 outlook.
Craig James: Not a problem at all.
Ends
