In a wide-ranging interview John Abernethy, Chief Investment Officer of Clime Asset Management, in conversation with StocksInValue analyst David Walker, covers the key macro elements of the outlook for Australian investors. The investment world is in transition with falling commodity prices, the Greek crisis, European and Japanese money printing and US interest rate normalisation yet to have their full effects. For the time being volatility will continue, making the fully valued ASX more of a trading market than an investment market.

Only Australian dollar depreciation and/or a recovery in commodity prices will push the ASX over 6,000. Our outlook for Australian dollar depreciation in line with falling bulk commodity prices creates a mixed outlook for our market. Banks have the headwinds of higher capital requirements. The best returns are still likely to be found in foreign currencies, companies with offshore earnings and inexpensive offshore equity markets.

Further, Australian bond yields are likely to rise next year after falling near-term. Domestic consumer price inflation and economic growth are currently subdued but inflation in Australia will accelerate in 2016 as imported goods become more expensive with the lower dollar. Globally, bond yields are likely to head higher next year as the era of ultra-loose monetary policy gradually ends. This will put pressure on earnings multiples. It also argues for caution on listed property trusts, where there is a risk of capital loss as alternative options for yield open up.