Financial Market Outlook Sound Money Matters Monday 22nd January 2018
Investors who avoided bank deposits had a profitable 2017. Diversified growth portfolios with up to 70 per cent of their money in growth assets made 12.1 per cent average. Australian shares did well, overseas shares had an excellent year and property was sound.
The last two years have been good and the whole period since 2010 positive as markets have recovered from the global financial crisis and investors have regained their confidence. Is a slump due in 2018?
Global economic conditions are predicted to stay healthy
Many economists are saying co-ordinated global growth is likely. Russell Investments, a major US fund manager, expects global economic conditions to remain healthy. The measure of activity levels in factories worldwide is at its highest in years.
The US share market has started the year with strong gains in anticipation of company profit increases. Its economy grew 3.3 per cent annualised in the September Quarter and 2.3 per cent over the year to then. Tax cuts will boost it further. Retail sales and consumer confidence are high.
The Federal Reserve is raising interest rates in response to a strong economy with unemployment at 4.1 per cent and still falling. It expects wage claims and inflation to increase and is pushing on the brakes.
The Chinese economy grew 6.9 per cent in 2017 and economists predict it will grow 6.8 per cent this year. It is still manufacturing but also becoming a consumer society. It continues to import large volumes of minerals and other goods from Australia.
The European economy is gaining momentum with growth of 2.6 per cent in the year to September. It should accelerate with higher unemployment and more spare capacity than the US.
The Japanese economy is improving after many slow years. It is still Australia’s second largest trading partner. The Asian middle class is growing and their increased spending power provides opportunities.
The Australian outlook
In Australia holiday season sales started slowly but picked up strongly after Christmas. Our economy grew 2.8 per cent in the year to September and should improve this year. Companies seem more interested in expanding and government spending on infrastructure will help.
Banks are likely to underperform this year due to bad press from the Royal Commission. They make up 35 per cent of the All Ordinaries Index so overseas shares are likely to do better again. However our miners should do well.
Borrowing costs for consumers and businesses are still low and the rates are pushing investors into other areas. With asset prices high, short term market corrections are more likely this year but economic conditions should underwrite sound returns.
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