Investment Update – July 2019

As we enter the new Financial Year, we are able to reflect on the previous 12 months as a period where almost everything went up, albeit with a remarkable difference between the two halves.

In the second half of 2018, share markets in Australia and globally suffered significant declines, primarily on fears of a global slowdown, driven by trade wars, a lack of Chinese economic stimulus, and increasing US interest rates.

The first half of 2019 more than recovered these losses, resulting in an above-average full year. The key driver for this change was interest rates: the US stopped raising, and began talking about cuts, restoring confidence. Similar positions in Europe, Japan and Australia, along with Chinese stimulus, led to a dramatic rise in share markets.

The situation in Australia was also impacted by the surprise election result, with the Australian stock market cheering the Liberal party win, and posting around a 20% return in 2019 to date. The residential property market is perhaps the one sector not to have shown strong returns, although indications are that the Liberal win, and the recent interest rate cuts are bringing some stability back to prices.

Economic Outlook

Overall the outlook is “ok”. Growth indicators are down compared to early 2018, so corporate profits and share prices may be constrained. On the positive, low rates continue to be supportive of growth, and share market valuations reasonable. Cash deposit and Bond yields are likely to remain low for quite some time. However, there are likely to be further instances of volatility, with continued risks of trade conflict, interest rate sensitivity, and Australian property prices and unemployment all contributing to investor nervousness, and making a good case for diversification in portfolios.

 

Economic indicators –  28 June 2019 1 year % excluding dividends
Australia: ASX 200 6.8%
Japan: Topix -10.4%
China: CSI 300 9.0%
UK: FTSE 100 -2.8%
US: S&P 500 8.2%
Australia: Rates at 28 June 2019  
AUD/USD 0.70
Official interest rates 1.25%
Aus 10-year bond yield 1.35%
 

 

 


Published : 10 Jul 2019