INTRODUCTION:
Investment is one of the most important aspect that is needed which helps in fulfilling
different future needs of the investor. There are different assets in which an investor can
invest so as to have a future benefits from the required investment. Every investment entails
an amount of some risk which is associated. Investment helps in promising the return of the
original amount along with an adequate return. So, investment is very important as it helps in
fulfilling different future needs of the investor
This report discusses and assesses the investment conditions in the Australian economy from
Top Down Fundamental Analysis.
First segment of report discusses the Annual Growth Rate of GDP in world Market. Annual
percentage growth rate of GDP at market prices based on constant local currency. Aggregates
are based on constant 2000 U.S. dollars. GDP is the sum of gross value added by all resident
producers in the economy plus any product taxes and minus any subsidies not included in the
value of the products. It is calculated without making deductions for depreciation of
fabricated assets or for depletion and degradation of natural resources.
Second section of report discusses the GDP in Australian market. The Gross Domestic
Product (GDP) in Australia expanded 0.6 percent in the second quarter of 2012 over the
previous quarter. Historically, from 1959 until 2012, Australia GDP Growth Rate averaged
0.89 Percent reaching an all time high of 4.50 Percent in March of 1976 and a record low of –
2.00 Percent in June of 1974. The Gross Domestic Product (GDP) growth rate provides an
aggregated measure of changes in value of the goods and services produced by an economy.
Australia’s economy is dominated by its services sector, yet its economic success is based on
abundance of agricultural and mineral resources. Australia’s comparative advantage in the
export of primary products is a reflection of the natural wealth of the Australian continent and
its small domestic market. The country is a major regional financial centre and a vital
component of the global financial system. This page includes a chart with historical data for Australia GDP Growth Rate.
The gross domestic product in Australia was up a seasonally adjusted 0.6 percent in the
second quarter of 2012. On a yearly basis, GDP expanded 3.7 percent, slowing from 4.3
percent in the previous three months.
In seasonally adjusted terms, the increase this quarter was driven by household final
consumption expenditure (adding 0.3 percentage points), total public gross fixed capital
formation (adding 0.2 percentage points) and net exports (adding 0.3 percentage points).
Pushing growth up, household consumption and spending on new vehicles were up almost 10
percent through the second quarter and 23 percent for the year. Nonetheless, the terms of
trade fell by 0.6% in the quarter and 7.1% for the year, a consequence of dipping export
prices as iron ore becomes cheaper. For this reason, the likelihood of a continued fall is very
much a possibility.
Final section of report details the Exchange Rates trend with up and down graph with the
affecting factors and it’s respond to market comparing Australian Dollar with US Dollar, Euro and Yen.
The exchange rate of Australia as compared to US dollar and yen has decreased by 0.0800 (.10%) and 0.0790(.10%) respectively. As on 20
th sep 2012, the day’s range of AUD US dollar was 0.9896 0.9965 whereas 52 week range was 0.9388 to 1.11080.
As per As per 20
th sep 2012, the day’s range of AUD JYP was 79.3710 80.0120 and a 52 week range of 72.0630 88.6420.
Fundamental Analysis: Investment Process: The portfolio of Investor can be said to be a collection of different investment assets. After establishing a portfolio the portfolio can be updates or rebalanced easily by buying new securities and selling the existing securities. The Top down portfolio construction generally starts with the allocation of assets followed by security analysis. Considering the sharpe ratio analysis, standard deviation and other statistical factors we can analyze that the best investment area is Bonds, large stock company and small stock company. (Refer Exhibits).
It is important to diversify your portfolio, so it is advised to focus on investing in different assets.
Asset Allocation: Asset allocation can be said as the process which focuses on analyzing the strategy for distributing the wealth of the investor among different countries and classes which will help in providing the best returns by strongly focusing on the attributes and characteristics of the asset and the returns that are likely to be earned from the same.
Sector Analysis of Australian Market:
The Australian stock market have improved as compared to the other stock markets of the world, the Australian stock market is highly related to the Japanese and US stock market as Japan is considered to be the second largest trading partner of Australia,. Considering the Australian market for 17
th May, we can see that the market started with a positive note but it fell by 0.2 or 8.1 points by the end of the day closing at 4157.4.
Sector Analysis:
Some of the main sectors of Australia are considered to be clean tech, consumer sector, financials sector, health and biotechnology, industrial and materials sector, resources sector and information technology and telecommunication sector. The
clean technology sector has the market capital of $8 billion with 76 companies operating in the sector. The
consumer sector is one of the distinguished sectors of Australia, with about $173.9 billion of market capital. This sector is led by Woolworths company which has the market cap of about $33758 million.
The financial sectors are the largest sector of Australia, with a market cap of $455.7 billion.
With a compulsory superannuation, Australia has 4
th largest pension fund pool in the world
which creates a favorable environment for banks and other financial institutions, One of the
biggest company in the financial sector is Common wealth bank with about $81517 million
of market capital followed by $66995 million for Westpac. Health care and biotechnology
Sector.
has about $49.1 billion of total market cap. Considering the market conditions, this sector has a strong potential for growth. The strongest player in this sector is CSL with a market cap of $17454 million. Metals and mining sector is one of the largest sector and includes different global giants like BHP Billiton, Rio Tinto which has a strong future potential for growth and success. This is one of the strongest sector which is reliant on the equity market and has high risk and return.
The three major sectors in which we are likely to invest are Healthcare sector, financial sector and Mining sector, as these are the major sectors which will result in the highest returns.
Company Analysis:
Commonwealth bank:
Commonwealth bank is one of the largest bank of Australia which has the incurred the cash profit of about 1.75billion. The shares of the company are being traded at $51.020. The share prices of the company has decreased recently but are expected to increase with the change in the economic conditions of the market.
CSL:
CSL is one of the biggest pharmaceutical company, whose shares are being traded at $36.810 and has witnessed a change of 0.65% decrease with the slow down in market as on 17
th May’ 2012, the prices of the stock are likely to increase which will give higher returns to the investor.
BHP Billiton:
BHP Billiton is one the biggest companies of Australia in miniral exploration and production. The company has a global presence and has witnessed strong growth in past years.
The stock of the company is being traded at 32.770 which is 0.86% higher than the previous day’s closing.
With a strong focus on investing in different stocks of different sectors the investor will be able to diversify the risk inherited.
Conclusion:
With a focus on diversification, the investor will be able to attain the required rate of return. He will focus on making a diverse portfolio which will help in minimizing his risk and focus on acquiring his present and future needs. Considering the market of Australia, the investor can invest in the Australian economy with a strong focus on diversification of the stock.
Attachments:
Assignment In….doc
CP Conceptual….pdf