News & Resources

Australian capital city home prices have fallen for 12 months in a row and are down 4% from their peak. Most of the weakness relates to the previous boom time cities of Sydney and Melbourne but prices are continuing to fall in Perth and Darwin.

Every so often shares go through rough patches. We saw this most recently around February on the back of US inflation and interest rate concerns and the start of US tariffs which saw US shares and global shares fall roughly 10% and Australian shares fall 6%. Shares mostly recovered – even getting through the seasonally weak months of August and September surprisingly well – with US shares making new records and Australian shares hitting a ten-year high, but the worry list has returned again with US, global shares and Australian shares now down around 7% from their recent high. This note looks at the issues for investors and puts the falls into context.

International share markets experienced major fluctuations during the June quarter owing to ongoing trade-tariff tensions. The Australian economy grew strongly, driven by strong Government spending on infrastructure and increased demand for Australian mining exports.

The key lessons for investors from the Global Financial Crisis (GFC) are that: there is always a cycle; while each cycle is different, markets are pushed to extremes of valuation and sentiment; high returns come with higher risk; be sceptical of financial engineering or hard-to-understand products; avoid too much gearing or gearing of the wrong sort; the importance of proper diversification; and the importance of asset allocation.

For years now, many have told us that Australia is heading for an imminent recession. By contrast, official forecasts have long been looking for several years of above-trend growth. In the event neither has happened and we don’t see them happening anytime soon. Against this backdrop, there are five things you should know about the Australian economy.

Investment returns over next five years are likely to slow The continuing slide 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 6.2% on our projections. The key for investors is to have realistic return expectations; allow that inflation is also low so real returns aren’t down as much; and focus on assets with decent and sustainable income.

For the last two calendar years the Australian dollar has defied our expectations for weakness. But after hitting $US0.81 in January it’s been trending down as US interest rates fell below the Australian cash rate, the threat of a US-driven trade war increased and it recently broke below a short-term range around $US0.74 and fell as low as $US0.72 on fears of contagion to global growth from a crisis in Turkey. This note looks at outlook for the $A and why it makes sense for Australian-based investors to hold a decent exposure to foreign exchange.

While the global economy is seeing its fastest growth in years and the US Federal Reserve has increased rates five times since December 2015 and is on track for more hikes this year, the Reserve Bank of Australia (RBA) has now left interest rates on hold for a record 21 months in a row.

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. Other cities will perform better. Property investors should remain wary of Sydney and Melbourne and focus on laggard or higher yielding markets.

The pullback in shares seen over the last week or two has seen much coverage and generated much concern. This is understandable given the rapid falls in share markets seen on some days.

Although 2017 saw the usual worry list – around President Trump, elections in Europe, China, North Korea and Australian property – it was good for investors. Balanced super funds had returns around 10%, which is pretty good given inflation was around 2%

The Fed hikes again, still gradual but likely to be a bit faster next year – implications for investors and Australia

Review of 2017, outlook for 2018 – still in the “sweet spot” but expect more volatility ahead

Is Australia’s economy “built on shaky foundations” that are “about to collapse”?

Bubbles, busts, investor psychology…and bitcoin

In this issue: Economic outlook, What will Amazon’s entry into Australia mean for Australian property?, Self-employed? Don’t leave your business at risk, Turning threats into opportunities, Financial matters for the over 60s, Fitness for the 21st century

Oliver's Insights The medium term investment return outlook remains constrained.

The Australian economy bounces back again – five reasons why some further pick up is likely and implications for investors

The June quarter saw a battle between geo-politics and economics. The quarter was characterised by healthy gains across the US markets, a tepid performance for the European bourses and strong rises across Asia, with the exception of China’s Shanghai Composite Index.