Investment Update – January 2018

2017 in Review

2017 has proven to be a rewarding year for investors, with healthy returns from virtually all growth assets. It was also a year of relatively smooth sailing, considering the number of risks present,

such as the geo-political risks of Trump, North Korea, and European elections, as well as the potential for interest rate hikes in the US.

 

Contributing to the positive returns was the fact that we have seen fairly strong economic growth in most major regions. This co-ordinated growth has been quite some time coming, with the US leading the post-GFC recovery and Europe in particular struggling for much longer. The combination of global growth, increasing corporate profitability, continuing benign monetary policy, and low inflation has been a winning formula.

The strongest performance in 2017 has come from Asian and Emerging Market shares, ahead of International Equities more broadly. Unlisted Infrastructure and Property (excluding residential) has also done well, followed by Australian Shares, which lagged global markets considerably. Cash and bonds naturally have delivered quite low returns.

Outlook for 2018

The factors that contributed to growth in 2017 look set to continue, namely global growth, low inflation, and supportive monetary policy. However, it is quite likely that we will see some increased volatility – there is bound to be some nervousness in the markets eventually, and this is normal.

Unfortunately for Australia, we expect the economy and sharemarket to continue to lag behind the other developed nations, due to modest corporate earnings growth, cooling property markets in Sydney and Melbourne, and constrained consumer spending. With the US Federal Reserve likely to continue raising interest rates, but Australia unlikely (soon) to do so, there is downward pressure on the Australian dollar.

So on the whole, we feel it’s a good time to be investing in growth markets, but as always this comes with volatility. Key risks continue to be political, along with US inflation and interest rates, and domestically the risks around our housing cycle and consumer spending.

Economic indicators – 5 Jan 2018 1 year % excluding dividends
Australia: ASX 200 6.4
Japan: Topix 20.9
China: CSI 300 22.9
UK: FTSE 100 7.4
US: S&P 500 20.9
Australia: Current at 5 Jan 2018  
AUD/USD 0.79
Official interest rates 1.50
Aus 10-year bond yield 2.64

 


Published : 15 Jan 2018