With end of the financial year now behind us we take a look back at what happened in investment markets and financial circles over the previous 12 months.
In short, 2018/2019 was a bumpy ride, though we still managed to see positive returns in all major asset classes. Below we have provided a summary of the major asset classes.
Table 1: Asset class returns to 30 June 2019
It was a tale of two halves for the 2019 financial year. The Australian All Ordinaries Accumulation Index chart below highlights a poor 6 months to December. This was followed by a strong rebound that has continued into the new Financial Year, so much so, the Australian Share market has recently hit all-time highs (the previous high was achieved in September 2007!)
When factoring in dividends this marks the seventh consecutive year the Australian share market has shown positive growth.
Table 2: Australian All Ordinaries Accumulation Index
The story was similar in worldwide share markets. Themes such as slowing global growth and trade wars in the months from September to December weighed heavily on market sentiment before an easing of trade tensions, particularly between the US and China resulted in a rally from late December 2018 to today so that US share markets are also at all-time highs.
Outlook for share markets
With global growth continuing to slow and share markets at all-time highs we are not expecting the same handsome gains we have seen in previous years. However, we continue to believe that an exposure to shares is necessary in a diversified portfolio to benefit from great dividend returns (and the attached franking credits) which are well above cash rates.
Much has been said about the falling house prices in Australia. Since the peak in November 2017, Melbourne house prices have fallen by 16%. In recent months, financial commentators suggested the market has hit the bottom, and since then, both Sydney and Melbourne have seen modest gains.
What’s important to note is that many statistics quoted on television and radio focus on capital cities. Looking closer to home, greater Geelong has remained relatively strong, having experienced only a short period of moderate growth.
Looking further afield prices look set to grow on the back of solid population growth and historically low interest rates.
Cash/Term Deposits (interest rates)
Interest rates had remained relatively steady in Australia for the past few years. However, this all came to an end in June when the RBA cut the official rate by 0.25%. This was followed by a second cut of 0.25% in July which brings the official cash rate to 1.0%, the lowest in Australian history. The US, who had previously been increasing rates, have now halted further rises. Most economists expect the RBA to announce a further cut by the end of year and cash rates will remain low for the foreseeable future.
With interest rates being so low, bank accounts and term deposits remain unattractive as long-term investment vehicles. Muirfield continue to advocate for a diversified portfolio of investments which plays to the adage, don’t put all of your eggs in the one basket. We recently wrote an article outlining some options for long term investing and it’s worth a read if you’re looking to improve on the return of your money in the bank. Check it out here