Even though the economic outlook is starting to brighten, it will be vital to have patience, be selective and choose opportunistic investments that are ripe for the picking.
Economic conditions in Australasia, and Australia in particular, will continue to improve. This will flow into confidence levels, but it is unlikely there will be a repeat of the dramatic increases that were witnessed in previous barometers.
External factors such as rising inflation, the high dollar, continued political instability in the Middle East, austerity and tax regimes and the impact of natural disasters (especially the Christchurch earth quake for the New Zealand economy) will keep executives level headed in the short to medium term.
Liquidity in Australasia will continue to be an issue with access to debt continuing to be a challenge. Mid cap and smaller companies will continue to look inwards around how they can raise capital for investments. This will be in the form of cost reduction campaigns, demergers and business optimisation particularly around working capital management.
Growth will continue to be a big ticket item. Larger caps will continue to seek opportunities in emerging markets, while others will look at organic growth through expanding into new customer segments, investing in new products and services and also in technology and research development.
M&A activity is likely to progressively increase. Private Equity is returning to the market place and will continue to lead divestment activity by becoming more competitive on the buy side. Transaction values will remain high with more transformational deal activity taking place among major companies.
The Australasian economy will continue to reap the benefits through its strong exposure to Asian industrialisation and the relative absence of the financial sector and government debt problems found elsewhere.
However, in this environment where corporate cash flow generation, dividend income and market valuations are volatile, companies should remain focused on building sustainable business models.
Even though the economic outlook is starting to brighten, it will be vital to have patience, be selective and choose opportunistic investments that are ripe for the picking. Across Australia and New Zealand we are seeing multi-speed economies and companies in different market capitalisations, sectors and regions that are recovering at different speeds and are impacted by different factors.
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