- Published on 31 Mar 2015
- - Self Managed Superannuation
We thought an update on where we see investment markets are at would be prudent given the recent movements on both local and overseas stock markets.
2015 has kicked off with a strong performance of sharemarkets, property markets, currency movements, but ironically all on the back of negative economic data.
We are in this strange investment environment where good news is actually bad news and vice-versa, bad news is good news. What we mean by this is negative economic data both domestically and internationally is probably going to drive sharemarkets higher in 2015.
The implications of worse-than-expected economic performance in Australia is likely to translate into continued RBA cash rate reductions, which makes shares, particularly strong dividend paying shares, more attractive relative to cash/fixed interest. This is also the situation in the US, where weak economic data will help defer US rate rises, a positive for their sharemarket.
Fundamentally we would prefer a strong domestic and global economy, as corporate earnings increase when economic growth and production is strong, however an environment (like the one we’re in now), with low inflation, low interest rates and a falling Australian dollar is also positive for corporate earnings and so it’s likely 2015 will be a reasonable sharemarket year.
The investment predicament we are now faced with is while markets should have another positive year ahead, it’s getting harder to find and extract value. Banks are looking fully valued, resource stocks are underpriced but patience will be needed for the cycle to turn around. US has had a strong run and recently Asia has come to the party, once again on a strong Chinese share market performance in a weakening Chinese economic situation.
Economic consensus tells us the Australian dollar is likely to drift lower, helping international holdings or ASX listed businesses with solid offshore earnings, and the financial stimulus created for Europe and Japan should result in these economies recovering from an extended period of weakness.
2015 is not going to be without its challenges. We know US rates are going to start rising, it’s not a matter of if, but when. We don’t know whether the US economy can continue to prosper if their cash rates, bond yields and interest rates start rising. We know Chinese economic data is softening, but we don’t know if they can avoid issues relating to property price deflation and over-leverage. There’s increasing speculation whether the current commodity cycle is going to throw the Australian economy into a recession, whether residential property will crash, or whether expensive share prices and multiples can continue to increase even with monetary policy and currency assistance.
We’re still seeing the investment glass as half-full (as opposed to half empty), weighing up all of the above considerations, but ultimately it comes down to your personal situation and risk tolerance and investment time frame in order to determine the right course of investment action.
Please feel free to get in touch with us in relation to the above or any other matter at a time that is convenient to you.