The most immediate impact appears to be on commodities, which has particular relevance in Australia, given our reliance on the resources sector. For instance, we know shipments of coal that usually travel from the east coast of Australia to Japan are being held up as a result of the destruction caused by the earthquake and tsunami. This is causing a slowdown in the refining process and ultimately impacts prices – currently causing the price of coal and platinum to fall.
Impact on investors
For investors, the rising prices of such commodities in the developed world will manifest itself as an impediment to household spending and potentially economic growth in the short-term.
In Australia, we expect this to maybe cause a 0.5% fall in GDP in this quarter, but over the medium term we remain bullish about the outlook for global markets. This is mainly due to the fact that we believe markets have already reacted to events in Japan and priced in the impact. We’ve already seen the currencies adjust, and if anything markets have overreacted, and could continue to do so.
Opportunities in markets
As such, we see opportunities in markets – a time to actually take on more risk as the value of growth assets is advantageous to investors. World markets are still conducive to growth over the medium to long term. Over the coming months as Japan starts to recover and rebuild, a significant amount of capital will flow into Japan, and as is often the case after natural disasters of this magnitude, the capital flow has a positive impact on global growth.
- We remain confident about global growth.
- We view the current retracement as an opportunity to accumulate risky assets.
- We believe the events in Japan are positive for the Australian market, in particular commodities.
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