Economic e-news - July 2018
17 July 2018
By Craig Turnbull
Chief Investment Officer
Time to look back at the year that was
It’s July and that means a lot of Australians will be undertaking the annual ritual of looking at their super and their investments to see how they have fared over the last twelve months.
And the news is positive for people with shares in their investment portfolio or their super. Despite increasing levels of volatility, the ASX 200 climbed higher over the last three months to record a total return of just over 13% for the financial year.
Source: Yahoo Finance
Mining and energy driving the share market up over the last financial year
The ASX 200 Resources Index, which includes companies in the energy sector as well as the minerals and mining industries, rewarded investors with a total return of 35% for the financial year.
Rising commodity prices have been driving up the value of resources shares on the back of improving rates of economic growth around the world. The US, in particular, has just chalked up nine consecutive years of economic expansion, the second longest in American post-war history.
Higher prices for commodities such as liquefied natural gas (LNG) and oil have boosted the share prices of Australia’s two largest independent producers. Woodside Petroleum’s share price rose 20% over the financial year while Santos shareholders enjoyed a doubling of their share price.
Rebounding prices for iron ore also lifted the share prices of our big miners. BHP shares surged 40% while Rio Tinto’s share price rose by more than 30% over the financial year. Both miners also rewarded investors earlier this year with substantially higher dividends.
Global economic growth continues to fuel the world’s appetite for our key commodities and investors have reaped the rewards over the last 12 months.
And who has been holding the share market back?
While overall the ASX 200 recorded a solid result, the performance of resources was offset by less-than-stellar performances of industrial and banking shares.
The total return on the ASX 200 Industrials Index which includes manufacturing, construction, engineering, transportation and commercial services, was just 3.04% for the financial year.
Performances of the big names in this index were mixed with Qantas shares jumping by more than 7% mainly due to strong domestic revenues. The share price of toll-road operator Transurban remained flat despite a strong profit result, and shares in logistics group Brambles fell 8% despite profits being boosted by US tax changes.
The ASX 200 Banks Index which includes the big four as well as the smaller regional banking institutions was the obvious underperformer with total losses of 6.7% over the last financial year.
The banks have been plagued by scandals and their reputations have suffered under the glare of the Hayne Royal Commission. Commonwealth Bank shares dived by more than 10% despite maintaining their dividends in February.
The one exception is Macquarie Bank. Escaping much of the intense scrutiny of the Royal Commission, Macquarie’s share price surged by almost 40% over the financial year on the back of strong profits and higher dividends for investors.
So what’s the outlook for investors?
While the outlook for global economic growth remains positive, escalating trade wars, increasing borrowing costs, fears of rising inflation and a softening domestic housing market are all adding to investor uncertainty and market volatility.
After two years of solid gains, many analysts are sceptical that the share market rally can continue for much longer without some sort of correction.
Keeping these factors in mind, the new financial year is the ideal time to get in touch with your financial planner. It’s a good idea to review your super and your broader investment strategy to make sure you’re effectively managing these types of risks over the short, medium and longer term.
Markets at a glance
for the month ending 30 June 2018
Australian shares1 up by 3.27%
Australian Government Bonds yield2 down to 2.630%
Australian dollar down to US$0.7391
Cash rate3 steady at 1.50%
International shares4 down by 0.20%
1 ASX 200 Accumulation Index
2 Yield on 10 year Australian Government Bonds
3 RBA cash rate
4 MSCI – World ex Australia (USD)