Quest for greater prosperity

Where’s the spark to ignite a virtuous cycle? Now, I’m not talking about a surge in coal or iron ore prices swinging our trade account to surplus. Rather, where is the sustainable growth likely to come from to fuel the next decade of economic prosperity?

Part of the issue lies in dwindling non-mining business investment. This represents investment in productive enterprises that will create new jobs, build wealth and deliver economic growth. In contrast, dwellings investment is surging; we’re building more housing. This investment focus (amplified by lending) needs to change.

Another part of the issue lies in the distinction between company earnings per share (EPS) and genuine earnings growth. The former is often pursued over short-time horizons, and can be driven by cost-cutting programs, share buy-backs and accounting policy (often linked to executive remuneration). Only genuine earnings growth leads to value creation and economic prosperity – when combined with an appropriate return on equity, a "business owner mindset", and sustained self-funding growth from cash flows. This must be provided to spark a virtuous cycle in the broader economy.

Anthony Golowenko, head of investments at Clime Asset Management.