MARKETS SPECTATOR: A feel for yield

Australians will continue to chase yield until the Reserve Bank raises rates, which may not happen anytime soon, Ord Minnett’s Tony Paterno says.

It is now an old refrain, repeated ad nauseam by stockbrokers and analysts to investors who are yearning for safe harbors amid volatile global markets: yield, yield, yield.

On paper Australia seems well placed to benefit for the search for yield. The S&P/ASX 200 Index’s dividend yield is 4.1 per cent, about 180 basis points better than the US S&P 500 Index, according to Matt Sherwood, a strategist at asset manager Perpetual. That puts Australia in prime position to tap dedicated international equity flow. Moreover, some of the largest companies by market value, the big four banks, have fully franked dividend yields of six per cent or more, making them desirable to both local and foreigners.

Mr and Mrs Australia show no signs of falling out of love with Australia’s biggest banks. Nor are they shunning Telstra, whose current 5.9 per cent yield (fully franked) has helped push the stock up 51 per cent over the last 12 months. Tony Paterno, a senior investment adviser at stockbrokers Ord Minnett in Melbourne, says Australian investors will continue to “chase yield” until the Reserve Bank starts to raise its benchmark cash rate. That may not happen anytime soon, says Paterno. He adds that the central bank may be more inclined to cut rates in an endeavor to stimulate the economy.

Paterno has seen no bargain hunting by Australian investors for BHP Billiton or Rio Tinto shares. Instead he reports of an ‘orderly sell-off’ of the stock. Still, there is no sign of ‘panic stations’, says Paterno, with the index holding up around 4,900.