Property prices in Sydney and Melbourne likely have more downside, but a crash is unlikely in the absence of much higher mortgage rates, much higher supply and a long continuation of recent high construction activity.
After the calm of 2017, 2018 is proving to be anything but with shares falling in February on worries about US inflation, only to rebound and then fall again with markets back to or below their February low, notwithstanding a nice US bounce overnight.
The period since the Global Financial Crisis (GFC) has seemed unusual in the sense that periodic crises and post GFC caution prevented the global economy from overheating and excesses building, in turn preventing the return of the conventional economic cycle. Many of course concluded this was permanent and that inflation would never rise again (with talk of structural stagnation, the Amazon effect, etc).
If Australia has an Achille’s heal it’s the high and still rising level of household debt that has gone hand in hand with the surge in house prices relative to incomes. Whereas several comparable countries have seen their household debt to income ratios pull back a bit since the Global Financial Crisis (GFC), this has not been the case in Australia.
2017 was unusual for US shares. While Japanese, European and Australian shares had decent corrections throughout the year of around 5 to 7%, the US share market as measured by the S&P 500 saw only very mild pullbacks of less than 3%.
Since the Global Financial Crisis (GFC) there have been a few occasions when many feared inflation was about to rebound and push bond yields sharply higher only to see growth relapse and deflationary concerns dominate.
2018 is likely to remain good for diversified investors. The investment cycle still favours growth assets over cash and bonds. But expect more volatile and constrained returns as US inflation starts to turn up.
At the start of last year, with global and Australian shares down around 20% from their April/May 2015 highs, the big worry was that the global economy was going back into recession and that there will be another Global Financial Crisis (GFC).
The Chinese economy is not about to collapse and isn’t likely to be at “peak commodity demand”. The failure of the Australian economy to crash after the end of the commodity price boom and mining
Investment markets are driven by more than just fundamentals. Investor psychology plays a huge role and along with crowd psychology helps explain why asset prices go through periodic bubbles and busts.
A further fall in investment yields across most major asset classes points to a constrained medium term return outlook. For a diversified mix of assets, this has now fallen to around 6.5% on our projections.
There is still little sign of the sort of excesses that precede major economic downturns and major bear markets suggesting that (although US shares are overdue a decent correction) we are still a fair way from the top in the investment cycle.
Banks globally are better value than local banks for share market investors but our “big four” still don’t look overvalued, says Shane Oliver, AMP Capital head of Investment Strategy and Chief Economist.
Substantial changes in the way we use and generate electricity is disrupting our energy supply model, but according to a new AMP Capital paper, efficiency gains will unlock existing supply and throw up a host of new opportunities for investors.
Tensions with North Korea have been waxing and waning for decades now but in recent times the risks seem to have ramped up dramatically as its missile and nuclear weapon capabilities have increased. The current leader since 2011, Kim Jong Un, has launched more missiles than Kim Il Sung (leader 1948-1994) and Kim Jong Il (1994-2011) combined.
Global demand for natural gas is rising as the world’s population expands and developing markets industrialise. This demand is increasingly being met by vast discoveries of shale gas reserves in North America where advancing technology is enabling profitable recovery, even at ever lower global energy prices.
Australian equities have been getting bad press with some investors warning they are significantly overvalued. The narrative goes that we’re in the midst of a housing bubble that will blow up and take the share market down with it.
Many diversified funds appear similar on the surface, but when you lift the hood, they’re poles apart. Evaluating diversified fund performance can be like comparing the proverbial ‘apples’ with ‘oranges’.
The downtrend in the $A will likely resume as commodity prices remain subdued, the interest rate differential in favour of the $A narrows to zero and goes negative and as now-long speculative positions reverse.
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Blue Moon Financial Consultants Pty Ltd ABN 49 604 478 702 trading as Blue Moon Financial Consultants is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services Licence 232706 and Australian Credit Licence 232706