Short answer – definitely not. While interest rates remain low investors will continue to favour stock that produce attractive levels of fully franked income e.g. the big four banks, Telstra etc. We see this across a number of our clients who are receive a pension from their super fund.

Anyone over age 65 must withdraw a minimum pension of 5% of their superannuation balance. This means their super fund must be generating 5% income or be at risk of drawing down on capital. With term deposit rates around 3.8% for 6 and 12 months, investors are forced to turn to reliable high dividend paying Australia shares for extra income. While the need for additional income continues to be in demand the share prices of companies that offer the higher fully franked income will be well supported.

While I believe the search for yield will continue, there is a good argument to start allocating money towards cyclical stocks. Recently Bill Evans (Chief Economist at Westpac Bank) declared the interest rate cutting cycle over. Further evidence of this is that Westpac Bank has started increasing fixed loan rates.

So what does this mean for the Australian share market? Which companies will benefit from an improving economy?

Cyclical companies should benefit well. Companies with exposure to the rising housing market, diversified financials and wealth management sector should perform well and companies that benefit from the increase of consumer sentiment.

The wealth effect theory indicates that as house prices increase peoples perceived wealth increases. Therefore, people are more willing to spend either through discretionary spending or have the confidence to invest. As a result businesses profits rise and feel confident in expending and the flow on effect continues.

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Thomas Jacks BCom (Acc), SMSF SpecialistTM, Adv. Dip F.S. (FP)
“I want to be able to assist clients with their investment and retirement planning by providing real strategy advice. It’s my aim to not only help my clients but to educate them by addressing the entire picture” Google Plus

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