Investment market update to December 2019
01 January 2020
All investment options produced positive returns in the half-year to December, with performance led by international shares.
The global economy remains weak, however the US and China may have come to a first stage agreement on trade issues, and central banks have continued to cut interest rates, both improving the outlook for global growth.
Australian bond yields have changed little from the first half of 2019, resulting in low returns from bond markets. The Australian office property market continued to be strong, with valuations and rents rising, however shopping centre property returns have stalled due to the increasing penetration of internet shopping. Oil and gold prices rose over the last six months of 2019, but the iron ore price slipped from its mid-year peak. The Australian dollar remains stable against the US dollar at around $0.70.
The Australian economy experienced modest growth of 0.4% in GDP over the September quarter, and 1.7% for the year. The unemployment rate remains low at 5.2%.
Similarly, the United States economy continues to grow slowly, Chinese growth appears to have stabilised at a rate of 6 %, while Europe and Japan are still struggling for meaningful growth.
Official interest rates in Australia have been cut twice since the first cut in June 2019. The Reserve Bank Governor noted that “After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point. The central scenario is for growth to pick up gradually to around 3 per cent in 2021. The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth.”
The strong Australian share market included good returns from some industrial stocks such as James Hardie, which is performing better in the US housing market, and Caltex, which has attracted some takeover interest. The banks however have been weak after Westpac and Bank of Queensland were forced to cut their dividends.
Small companies slightly outperformed the larger corporates in Australia. International shares produced the best returns while the US, Japan and a number of emerging markets outperformed.
Global listed property had a good return of about 6 %, slightly better than Australian direct property.
In the six months to December, returns for the LGS blended strategies were all positive. The better performance of the High Growth and Balanced Growth investment options was due to their higher allocation to the share markets.