As we welcome the New Year we would like to take this opportunity to thank you all for your continued support and business throughout the previous year.
In our first update for the year, I would like to highlight some financial observations that have occurred over the last six months on Australian and global markets.
Starting with overseas, it appears that the US Government has avoided the fiscal cliff dilemma for now but we look anxiously over the coming months, as to what the policy makers will do to avoid any possible defaults on the US debt ceiling. Employment and exports are starting to fire up the US economy which is a great sign for the rest of the world in 2013.
Euro Zone is still looking a bit weak as growth drivers have stalled, especially in Germany and Italy where we see more economic head winds for this region of the Euro-zone in the first two quarters of 2013.
Japan, the world’s third largest economy, has now elected its new prime minister (Shinzo Abe) who has started to stimulate the once dormant economy back to life. This is potentially a real bonus for the Australian market as Japan is one of Australia’s largest trading partners; we will watch this region of Asia closely in 2013.
Emerging markets are a real surprise package with the countries like Indonesia, Singapore and India showing great signs for growth in 2013. Although a volatile part of the world, their economies are bolstered by cheap labor markets and a growing middle class that are consuming like crazy.
The Australian economy, also known as the Goldilocks economy, is still the stand out of most OECD economies of the world. 2013 will issue the nation with many challenges as we lead into election phase in Q3 2013.
Exports, terms of trade and consumer confidence and rising unemployment are all going to be tested throughout the coming year. The RBA minutes are factoring in lower interest rates and weak non-essential consumer consumption which would put pressure on jobs and direct property markets.
With lower interest rates forecast by most senior bank economist the search for yield for self-funded retiree investors will be challenged. We feel that it’s extremely important to remain diversified during the year mainly into high quality assets that are consistent with one’s risk portfolio.
So what does this all mean for Investors?
- Shares are likely to provide another solid year of returns. Shares are very cheap against bonds, as bond yields have fallen further and should benefit from ultra-easy monetary conditions globally and the anticipation of stronger profit growth in 2013-14. Worries about Italy and Spain could trigger a bout of volatility around February/March, but overall returns are likely to be solid.*
- Falling interest rates and improved sentiment towards China are likely to see Australian shares do well, but uncertainties about the growth and profit outlook will 2013. Bombed-out cyclicals such as resources, along with yield plays like telcos, are likely to outperform. *
- The Australian dollar is likely to fall to around parity with the US dollar as the combination of narrowing interest rate gap, slowing growth and a widening trade gap offset the impact of more US quantitative easing. *
- Cash and hence term deposits are likely to become even less attractive as cash rates slide to 2.5 percent, further pulling down term deposit rates well below 4 per cent. *
- Historically low starting-point bond yields suggest low returns from sovereign bonds, unless global bonds, given higher yields. Corporate debt is a better bet for those after income. *
- Listed property securities are likely to continue to benefit from investors seeking yield; however returns are likely to slow after the 20 to 30 per cent returns of 2012. *
- Unlisted commercial property and infrastructure are likely to benefit from relatively attractive returns and strong investor demand, given their relatively attractive yields: e.g. around 7 per cent for commercial property. *
- Australian house prices are likely to see a modest 4-5 per cent bounce on the back of lower mortgage rates. *
In conclusion domestically, the ASX 20 index has had a break out 6 month and is now at an 18 month high having returned over 16% including dividends over the last 6 months. It clearly shows that investors should remain consistent to their chosen time horizons with these growth type assest classes.
As ever we at Fundzcorp remain committed to serving you and your family throughout 2013 in helping you reach your financial goals.
Until next time, continue to enjoy good things.
Marcello Blasi
(*Source Dr. Shane Oliver, AMP Capital)
