This week’s advisor is Candice Bourke, from Shaw and Partners. Here’s what she said in response to Tamara’s question:

Short answer – no.

Long answer being….

Like any child on a long road trip, the inevitable question of “are we there yet?” comes up when discussing when global central banks will stop raising interest rates.

While headline inflation in the US and Australia is moderating, core inflation remains persistent and comfortably above central bank target ranges.

Central banks are desperate to avoid expectations of higher wages and prices becoming entrenched but in our opinion we are getting closer to slowing down the rapid rise in interest rate hikes.

To the question du jour; is cash king or queen, which is another way of saying is it the superior asset class right now?

Well markets are currently pricing in that central banks will soon begin cutting interest rates and that this will be a 2020-like scenario for markets, which further supports my answer as ‘no’.

Contrary to the market view right now, we believe that US and Australian interest rates will remain higher for longer, leading to the persistence of a tougher economic environment.

Controlling inflation is paramount; so it is likely in our opinion that central banks are unlikely to cut rates rapidly unless there is significant economic damage. 

So with this in mind, we think investors should be vigilant in the current market, take profits in growth assets when you can, to build up cash within the portfolio but to NOT be overweight cash.

Instead, we prefer to stay invested the market as the opportunity cost of missing out on the recent bull market rally is too high, and also there are good gains to be made in lower risk asset classes offering a higher return than money markets and cash such as the Australian Hybrid market (paying 6-7% yield p.a.) and the Corporate Bond market.

Looking at the Australian market, the total shareholder return is sitting around 10.92% for this year comprising of 4.17% dividend yield and a 6.75% capital gain.

Not a bad return for a recession-nervous market which beats parking your money in the bank!

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