Weekly reports | 10:00 AM
Weekly Broker Wrap, In short: Debt will double amid rising interest rates, flows downgrade for small cap investment platforms, home goods retailers will suffer from tighter discretionary spending.
-Double the public debt in three years to weigh on taxpayers
-Small cap investors should expect continued volatility in the market
-Discretionary spending on household items likes to be mastered in advance
By Danielle Austin
Taxpayers are tasked with paying the piper as debt per person doubles
The cost of the covid pandemic will impact taxpayers for years to come, with heavy borrowing under a zero covid policy set to have long term impacts in Australia. As the country’s debt burden increases by 11.2% in 2021 to $1.462 trillion while global debt service costs have fallen to a record low of 1.6%, the looming threat of an increase in interest rates should significantly increase the national debt.
Janus Henderson economists predict that Australia’s debt per person will double by 2025 to $68,806 thanks to the cumulative impact of rising interest rates. Australian borrowing in response to the pandemic has exceeded the global average, with global debt increasing by 7.8% in 2021 compared to 11.2% for Australia. While Australia has benefited from a low debt-to-gross domestic product ratio when borrowing, with a -47% discount to its international peers, which has allowed it to remain one of the leading industrialized countries the least indebted despite the huge increase in borrowing, rising interest costs appear to be driving Australia’s debt to rise at a faster rate than the UK and Europe in 2022.
Janus Henderson predicts that global public debt will increase by 9.5% in 2022, with the United States, Japan and China identified as the main drivers, while global debt servicing costs will increase by around 14, 5% due to rising interest.
Market volatility makes it hard to read on investment platforms
Market rebounds since the first-half earnings season prompted Citi to upgrade its outlook on small-cap investment platforms, but the brokerage notes a high likelihood of volatility ahead. While the ASX-300 is up 3% since the companies released their first half results, the broker expects the geopolitical dispute between Russia and Ukraine, rising rates of interest and the threat of further covid outbreaks continue to cause market uncertainty, and anticipate lower net flows as a result.
Given the impacts of better-than-expected market results in recent months for investment platforms Netwealth Group ((NWL)) and Hub24 ((HUB)), Citi has raised its funds under administration forecast for each company by 1% . On expected market volatility, the broker lowers its flow forecast for Netwealth to $14.3 billion from $14.8 billion, but remains above the company’s forecast of over $13.5 billion . Citi analysts also noted that medium-term earnings should benefit from a shift to specialized investment platforms.
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