Shane Oliver reveals myths underpinning investor fears

Published at Sep 12, 2016, in Question and Answer

AMP Limited (ASX:AMP) AMP Capital’s Head of Investment Strategy and Chief Economist Shane Oliver tells The Capital Network’s Lelde Smits which headlines are fuelling investor fears and why they need to be challenged.

Watch the video below or read on.

Lelde Smits: We are often bombarded with negative headlines, especially investors through the financial press. Which negative headlines are sticking out for you?

Shane Oliver: There are several which stick out for me. You constantly hear this talk, “Sell everything, we’re going to have this massive crash” and occasionally we do have these falls. But, most of the time markets sort of trend higher over time, and even when we do have a pull back, it’s just that, a correction.

In Australia you get this constant talk about a recession. I’ve see lots of ads out there, I’ve seen lots of predictions about recession. They seem to come around every three/six months or so, in fact ever since the mining boom ended, we’ve been told we are going to have a recession – caused by the end of the mining boom or caused by the coming property crash, which never eventuates. So, these things keep people very nervous I think.

Lelde Smits: Absolutely. Well you’ve highlighted a few there, we’ve got the mining gloom and doom, we’ve got the recession talk, the housing crisis. Why don’t you think these headlines are actually painting an accurate picture of what’s happening in Australia’s economy.

Shane Oliver: I think there are a couple of reasons. Often times they key off a particular event, which may be just one of many, so it’s taken out of context, and the headline of course exaggerates it. The other one of course is that it’s quite easy to get a headline if you want to in this business. If you want to be alarmist we all know the old story, ‘bad news sells, good news does not sell’. If I want to get a headline, the best thing I can do is come out and predict a recession.

Lelde Smits: ...And then we get some click-bait. But Shane, on the positive side, what are your top reasons investors should be feeling positive about the economy?

Shane Oliver: There are three reasons. First one being the economy is growing. Despite the end of the biggest boom in our history, our economy is growing, the weakness in Western Australia and the Northern Territory has been offset by strength in places such as New South Wales and Victoria as sectors like housing, retailing, tourism, higher education, they’ve all sprung back. That’s the first point.

Second point is that the worst is probably over for the mining boom slump. So, we know there has been a massive collapse in mining investment, we know there has been a massive collapse in iron ore prices and so on. But, if you look out there the size of these things might be coming to the bottom and so the big drag from that is coming to an end.

And finally, there is a huge surge going on in public infrastructure investment around Australia, particularly in the east coast cities. Part of that is the old Joe Hockey asset recycling initiative. But whatever it is, there is a lot of activity going on so all of these things, I think, are keeping the economy alive and going well.

Lelde Smits: OK they are some great positive points there. But, for investors as we know when they are navigating the investment landscape they need to keep the positive and negative in mind. What would be your parting warning to investors trying to balance these negative headlines with positive indicators?

Shane Oliver: To me I think the key is here to turn down the noise. When you hear these headlines, try to put it into context. Obviously you are going to get these negative headlines. Realise the motivation as to why they are there, because bad news sells, and then look at the context of things. And I think as an investor you have to realise that assets which generally are connected to an economy, to growth, will perform well over a long period of time. Don’t get distracted by the bad news and the headlines.

Lelde Smits: Well Shane Oliver, thank you very much for your insights and for that very positive warning and update today.

Shane Oliver: Thank you.

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