INSIDE INVESTOR: How to profit from the transition

As the global economy shifts direction, what is the best way to optimise your portfolio?

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How do you profit from the transition taking place within the economy right now? By recognising the trends and moving ahead of them.

As the investment phase of the resources boom begins to wind down, the Australian dollar will ease back.

That will have a profound impact on Australian businesses. In the weeks immediately following the announcement by US Federal Reserve Chairman Ben Bernanke that America’s massive monetary stimulus would be wound back as its economy improved, the US dollar soared and ours retreated.

When combined with the wind down in the amount of capital flooding into Australia, our dollar is likely to sink back to the mid-80s by next year.

And that will be the catalyst to kick start the old engine room of the Australian economy, the services sector and, to a lesser extent, manufacturing.

Any company with foreign operations or those bringing in US dollar earnings will receive an immediate boost to their bottom lines.

Companies based in Australia exporting goods or services will find their competitiveness immediately enhanced. The price of the goods they export will drop on overseas markets.

Businesses that are domestic only will also benefit. Our manufacturing industries have laboured under the weight of the dollar, often attempting to compete against much cheaper imports.

They’ve been forced to become leaner and meaner, slashing costs and improving their systems. They are now in a strong position to capitalise on their new found competitive position.

For the past three years, there has been a lot of talk about Australia’s two-speed economy. The east coast of Australia, where most of the service and manufacturing industries are based, has suffered as the resources boom thrust the currency higher.

It is now time for the economy to rebalance and a lower dollar will be the mechanism that will bring the economy back to a more normal balance.

Wall Street has been at record levels despite a sick economy largely because of its weak dollar. Our market is still 20 per cent below its 2007 peak even though Australia has been one of the world’s best performing economies. A weaker dollar will help drive earnings and share prices.

How do you profit from the transition taking place within the economy right now? By recognising the trends and moving ahead of them.

As the investment phase of the resources boom begins to wind down, the Australian dollar will ease back.

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