Look out from your backyard

Events around the world have an impact on mum-and-dad investors at home, writes Anthony Keane

IT’S a small world after all when it comes to global and political effects on your personal finances.

Politics and money markets are as closely entwined as they ever have been, and there’s no shortage of issues – Australian and international – that may affect everything from your mortgage interest rate to your superannuation and share investments.

Governments everywhere increasingly try to be popular rather than make necessary financial reforms.

WORLD MATTERS

Economists say you should consider global and political factors when making your own money decisions, and get some financial advice if you are unsure.

Darryl Gobbett, chief economist at financial advisory and stockbroking firm Baillieu Holst, says the world’s working class and middle class voters are rallying against so-called establishment elites, globalisation, deregulation, budget austerity, low interest rates and immigration.

“This political movement has implications for our economy, the Australian dollar, interest rates, profitability of companies and the tax regime,” he says.

For starters, with our national parliament so shaky, don’t expect major tax reforms. Companies and higher-income earners will continue to face much higher tax rates than their global peers, Gobbett says. Superannuation contribution limits, rather than spending cuts, appear to be the way the Government wants to improve the federal budget, he says.

“Inflation seems likely to remain below the Reserve Bank of Australia’s 2 per cent lower limit well into 2017. This leads to the cash interest rate likely being cut to under 1 per cent,” he says.

The US is forecast to increase its official interest rate in December, potentially causing some Aussie dollar weakness, but it’s currently less than one-third of Australia’s 1.5 per cent cash rate. A downturn in the US share market – which was at record highs last month – is likely to flow through to share prices here.

RISKS REMAIN

AMP Capital chief economist Shane Oliver says while the traditional period for share market weakness – August to October – is almost over, risks remain high for the months ahead.

The US election on November 8, US interest rate rises, shaky European banks and political moves in Europe are among the events to watch, Dr Oliver says.

“However, after any shortterm weakness, we anticipate shares to trend higher over the next 12 months helped by OK valuations, continuing easy global monetary conditions and moderate global economic growth,” he says.