The financial year to 30 June 2017 was a very welcome contrast to the previous financial year when uncertainty was high and market returns were low. Despite political risks featuring prominently through the year and higher interest rates in the US, the 2016/17 year has been a rewarding one for investors.
Asset Class Returns to 30 June 2017
|Global Bonds (hedged)||0.5%||5.1%||5.5%||7.5%|
|Global High yield bonds (hedged)||7.5%||5.1%||0.0%||0.0%|
|Australian property securities||-5.6%||12.2%||14.2%||-0.1%|
|Global property securities (hedged)||3.2%||8.7%||12.3%||4.2%|
|Global shares (hedged)||21.0%||9.6%||14.9%||6.4%|
|Gobal shares (unhedged)||15.9%||12.9%||17.8%||5.3%|
|Emerging Markets (unhedged)||20.5%||8.7%||10.6%||3.3%|
*Annualised returns. Past performance is not a reliable indicator of future performance. Sources. FactSet, JANA Corporate Investment Services Limited.
Global economy looking good
The global economy’s improved performance over the past year and pick-up in corporate earnings were very supportive of share markets. Positive business surveys, rising consumer sentiment, solid jobs growth and lower unemployment have been evident across the US, Europe and Asia. This stronger global economic performance was sufficient to counter political uncertainty, especially in Europe where electoral success of anti-European Union parties was feared.
Global shares are all “TRUMP-ed up” but risks are still evident
Global shares made robust returns over the past year, delivering 21.0% on a hedged basis. The unhedged return was lower at 15.9% because the Australian dollar (AUD) strengthened against most of the world’s major currencies. In the US, the S&P500 Index gained 17.2% in local currency terms and achieved record highs. President Trump’s bold promises of corporate tax cuts, higher infrastructure spending and less regulation were supportive factors. European share markets also made remarkable gains given positive economic activity and encouraging business surveys. Germany’s was up 27.3% for the year and the French market gained 24.8%. Despite the uncertainty created by the surprise Brexit vote and the Conservative Party’s recent loss of their parliamentary majority, the UK share market increased by 16.9%.
Emerging markets enjoyed a sharp recovery…
The positive tone in developed markets extended to the emerging world with the MSCI Emerging Markets Index making a sharp recovery over the year, returning 20.5% on an unhedged basis. China’s share market gained 9% in response to the economy’s solid performance, which was driven by a large infrastructure spending stimulus program and a robust housing market. India’s economic growth modestly slowed. However India’s falling inflation and lower interest rates were supportive of India’s share market. Even Russia’s economy appears to be emerging from recession with the benefit of lower interest rates and despite the fall in oil prices which is Russia’s key commodity export.
Australia’s share market was a solid performer
Australia’s share market was stronger with the ASX200 Accumulation index rising by 14.1%. Favoured sectors were the resources laden Materials index which increased 25.8% and Utilities which was up 19.6%. While Australian bank shares were negatively impacted by the new levy announced in the Federal Budget, the Financials (ex-Australian Real Estate Investment Trusts, A-REITs) sector still managed to record a positive return of 20% for the year. Australia recorded mixed economic data over the past year. Australia’s annual economic growth at around 2% was subdued judging by historical measures. Despite better jobs growth, both the unemployment rate at 5.5% and underemployment rate at 8.8% remain high. Accordingly, Australia’s annual inflation has been sedate at 2.1% in the year to March 2017. In response to these mild wage and price pressures, Australia’s central bank cut the official cash rate from 1.75% to a historic low of 1.5% in August 2016. In Sydney and Melbourne, lower mortgage rates have served to both extend the boom in residential property prices and support robust apartment construction. Australia’s business survey results have also been encouraging with the National Australia Bank survey showing strong gains for both confidence and conditions.
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