US automobile industry

The creeping slowdown in both the US and China has broad ramifications for Australia and global equity markets, a leading fund manager warns.

Australian Ethical international equities portfolio manager Nathan Lim says ‘we have kept our economic assessment for China at neutral as it still seems economic growth is only decelerating. Regardless, this does not bode well for Australia’.

‘Similarly in the US, Fed chair Ben Bernanke reminded the market that the Fed’s unconventional monetary policy must have a finite life and stimulus would need to be withdrawn as the economy continues to improve. This has resulted in tempered investor sentiment,’ says Lim.

More specifically, Lim says the US automobile industry is being coerced into selling electric cars at substantial losses to comply with government policy.

‘Whilst we fully support policy that seeks to correct market distortions – such as pricing the societal cost of pollution, we believe this is very poor policy as it creates an artificial economic disincentive to address the unpriced externality of air pollution from vehicles.

‘This is inherently wrong because governments have been consistently very poor at picking technology winners and at its heart is targeting increased electric vehicle sales not air pollution per se.

‘In our view emissions reduction targets and economic incentives are a far better driver of change.’

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