Economic data released over the last couple of weeks has given Australian sharemarket investors reason to believe that 2014 returns could be just as strong as 2013.
We have seen job ads increase by 5.1% in February, dwelling approvals increase by 6.8% in January and 35% over the year, the economy tracking at 3.2% annual growth, retail sales up 1.2% in January, and the largest trade surplus in two-and-a-half years in January.
Couple this with an outlook of stable interest rates, solid data out of China, and a strong profit reporting season from Australian-listed companies, and investors have every reason to believe that 2014 will be remembered as a year of good returns.
2014 so far
After a shocking start in January (a 3.5% fall) and a poor start to February (a further 2% fall), the ASX 200 and All Ordinaries have staged a remarkable comeback to now be up 2% for the year.
What to buy
Well, the good data spans most sections of the economy, from housing, to jobs, and even the mining sector. The best way to gain exposure is through companies with competent management, a strong track record of investor returns, and a positive outlook.
For exposure to the housing market, I'd consider James Hardie Industries plc (ASX: JHX) who manufacture building products both here and in the US, or Australia and New Zealand Banking Group (ASX: ANZ), which stands to benefit from an increase in mortgage activity.
Looking at jobs growth, the obvious choice is job website operator SEEK Limited (ASX: SEK), however a less obvious choice might be to seek exposure to consumer spending through a company such as Wesfarmers Ltd (ASX: WES) due to the group's exposure to many sectors of the economy.
Of course, solid data out of China will benefit our large mining companies such as BHP Billiton Limited (ASX: BHP), while the stable outlook on interest rates should give investors confidence and increase revenue for sharemarket operator ASX Ltd (ASX: ASX).
Foolish takeaway
An improving Australian economy is great for individuals, companies and thus investors. Confidence in the country and a stable outlook gives companies and consumers more confidence to spend, which further aids the economy. Picking companies that are exposed to an improving Australian economy, as well as being quality companies in their own right, should allow investors to outperform over the long term.
