MENU

S&P warns Australia’s AAA credit rating is still vulnerable

Standard & Poor’s is one of the largest credit rating agencies in the world. It is the name behind many of the indices we invest in like the S&P/ASX 200 and the S&P 500.

I’m sure many readers will have already seen the highlights of the budget, which included tax cuts for nearly every taxpayer, more funding for the elderly and an infrastructure bonanza.

Some market commentators are saying that the $1,000 tax cut for many households could lead to a boost for the economy as a lot of people are likely to spend the money. Of course, spending money makes our economy go round, so it could be a boost for the share market. Businesses like Wesfarmers Ltd (ASX: WES), Woolworths Limited (ASX: WOW) and Nick Scali Limited (ASX: NCK) could all see a boost in earnings, which is why their share prices went higher today.

Some cynical people have said this is just a pre-election budget and it would have been better for the country to return to surpluses sooner so that the huge debt can start to be repaid.

But, the worry for S&P is that the global economy is moving closer to a downturn and this could affect Australia significantly. The strong global economy has helped the budget significantly in the past few months, a weak global economy could weaken the budget.

According to quotes in an article in the AFR, S&P said “Global trade tensions, coupled with rising investing aversion to emerging markets in recent months, may dampen economic growth among Australia’s key trading partners.

“As such, risks to the government’s plan for an earlier return to budget surpluses are significant. The outlook on the long-term Australian sovereign ratings remains negative for now to reflect these uncertainties.”

The credit rating of Australia is critical for our economy. Our banks are able to access credit at the lowest rate from overseas, if our rating was downgraded then the interest cost for banks would increase and the interest rate on mortgages would increase. This would not be good for the bank stocks like Commonwealth Bank of Australia (ASX: CBA) or discretionary businesses like Nick Scali or households.

Foolish takeaway

Ultimately, an investor shouldn’t worry too much about credit rating changes if their portfolio is full of quality growth shares that will continue to grow profit over the long-term, like Altium Limited (ASX: ALU), Challenger Ltd (ASX: CGF) and Ramsay Health Care Limited (ASX: RHC).

A quality stock that could do even better in a recession is this leader in the auto industry.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

Motley Fool contributor Tristan Harrison owns shares of Altium, Challenger Limited, and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!