Markets, News, Views, Commentaries….. 

The good news for our investments is that throughout March shares in all markets have continued to recover from their sell-off late last year.  At the same time income-focused investment classes like property (local and global) and infrastructure have been in strong demand, and defensive instruments (bonds) are also ahead for the year as bond yields have fallen.   The December Quarter correction reminds us of the fundamentals that should be built into anyone’s financial planning: Diversification, Moderation, and Flexibility, which allows you to ride out these volatile patches.  We’ll continue to highlight these important basics in these Newsletters.     (See also this month’s Tip at the end of the Newsletter).

The following chart from IRESS shows us 100 years of Australian share market behaviour in a simple visual:  it’s another example of a ‘normal distribution’ or the old Bell Curve.  By far and away most years provide ‘normal’ returns for shares, in the ranges of 0%-10% and 10%-20%, with varying outliers in the highly positive or highly negative range.

On the economic front, as we look ahead the most likely scenario is that the world economy will “muddle through” with ongoing economic growth still positive, though slower than previously expected. Risks and uncertainty remain high, however, particularly around threats to world trade.   

Australian economic data has been a mixed bag for a while now but more recently the data has been on the cool side: both the Westpac and NAB confidence surveys showed more pessimists than optimists though for businesses at least, this was more a short-term feel with overall higher activity expected over 12+ months.

Regardless of activity, the likely immediate economic outlook is for slower growth than previously expected leaving business to grapple with how to grow profits in a slower-growing economy.  In the larger cities, sharply lower house values affects confidence in an already cautious household sector.  Wages are barely keeping pace with inflation and spending on discretionary goods and services, which can be seen as a better reflection of household finances, is soft.  And, as always, things seem to go into hibernation before an Election.

Cash and bond yields will remain low and could even fall further – there are quite a few fixed income managers predicting the official rate to drop by 0.5% or more.

Sources:  RBA, MorningStar Research, IRESS, Franklin Templeton, Pendal Group.