Global-equity investors have benefited from the markets’ positive reaction to the Greek bailout agreement, and ongoing global growth remains helpful for growth assets, though with marked regional variations. A major headwind, however, is expensive valuations, especially as both US and UK interest rates look likely to rise in coming months. Locally, the economic news has been mixed, suggesting that the current subpar rate of economic growth is still well entrenched, and a clear acceleration in business activity seems some way off.

The Australian dollar is significantly weaker: Year to date, it has dropped from USD 0.820 to USD 0.743.

In Australia, shares started the year strongly, but levelled out in March and April and have generally been sliding since, though at the time of this writing, there has been a Greece-related rally that has helped performance. The S&P/ASX 200 index is now showing a year-to-date 3.1% capital gain, and the total return including dividends is 5.3%.

The outlook is for more of the same.  There has been a string of indicators that still show the Australian economy pottering along at a slower-than-usual pace of growth, and there is still no clear-cut evidence of the acceleration in business activity that might underpin stronger performance by local shares.

At the more optimistic end, the latest (June) National Australia Bank business survey found “confidence is now positive in all industries except mining, which is currently [a net] zero,” and that “improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is under way.” However, NAB also noted a great deal of variation from sector to sector and a general reluctance to start hiring.  Significantly for shares, businesses are reporting that their profitability is steadily increasing, though still far from stellar.

Globally, despite some choppiness, particularly in March where there were two sell-off episodes, share markets worked their way up to a high in May, but lost ground in later May and June. Part of the weakness was temporary and related to the twists and turns of the Greek debt crisis.  The relief rally has modestly improved global equity outcomes, and year to date the MSCI World Index has shown a capital gain of 5.6% in the local currencies of the overseas markets, and of 3.5% in USD terms. The depreciation of the Aussie dollar has, however, boosted this modest performance into a substantial gain of 14.4% in AUD terms.

Over the past month the major share markets shown below posted gains with the exception of Japan’s which was flat for the month.  For the year to date (as at mid-July), performance is as follows :

–       the local ASX 200 is +301%.
–       the Eurofirst 300 index is up 15.5%
–       Germany’s DAX is +17.5%
–       France’s CAC is +17.8%
–       in the USA the S&P 500 is +2.4%
–       the UK’s FTSE 100 is +2.9%
–       Japan’s Nikkei is +16.8%

And of course China’s Shanghai Index has drawn plenty of attention lately too.   As at 10 July:   The main Shanghai Composite Index has fallen 32% since June, following a remarkable 160% increase from May 2014 to 12 June 2015. Despite the recent falls, Chinese shares are still up 72% this year to 10 July 2015, still way beyond any sort of normal or fundamental behaviour…..

Sources:  ASX, Morningstar Research, RB, Colonial First State Research