An interesting article by Charlie Aitken of Bell Potter Securities looks at the ramification of our low interest rates.
Whilst low interest rates are positive for the residential property market there are currently a lot of people, since the GFC, hiding in cash investments for perceived security.
About 30% of SMSF assets currently sit in cash and there is a total of $440 billion siting in bank term deposits.
Future term deposit rates in the “3’s” and maybe “2’s” would be returning, after tax, less than inflation, or negative in real terms, so savers will be forced to take a risk to achieve an acceptable after tax income stream.
Such a move from cash to productive investments such as shares could see yields reduced, particularly on fully franked equities.
This may come about, not due to companies reducing there dividends, but rather the price of stocks rising due to increased demand.
Charlie Aitken is tipping that yields could be compressed to 5% and the ASX200 to rise to around 5,000 or 5,200 over the next 12 months.