FY2018 Market Wrap: Solid Returns but a Year of Two Halves

We were fortunate enough to have one of Australia’s most qualified financial adviser’s CEO of Supersolve Financial Services Nick Sheather, share his FY2018 market wrap of Australian and Global Share Markets. According to Sheather, the global market offered another year of double digit returns despite being a year of two halves. With the Reserve Bank of Australia Cash Rate staying at a record low of 1.5 percent, this continued to impact returns from interest bearing investments…

By Nick Sheather

The past financial year saw solid returns for diversified investors, but it was a story of two halves. Strong first half returns were evident as the global economy continued to strengthen on the back of improved corporate earnings and a strong US economy where substantial tax cuts became law. In the past 6 months however markets became more circumspect following the release of positive US employment numbers which led to concerns the Federal Reserve would be forced to be more aggressive in raising interest rates.

Markets were further unsettled by global trade tensions after the Trump Administration imposed tariffs on a range of products and explicitly targeted Chinese imports. On balance however, key share markets achieved positive double-digit returns including Australia’s where high returns by the resources, energy and healthcare sectors helped offset subdued bank and telecommunication performances.

United States

The US economy continued to perform strongly throughout 2017/18. Economic activity grew at a solid rate and strong jobs growth was evidenced by a reduction in the unemployment rate to just 3.75%10, a 48-year low.

Household spending grew due to wages growth and income tax cuts. Business investment also grew strongly. In expectation of sustained economic expansion, the US Federal Reserve (the Fed) raised interest rates on three occasions over the course of our financial year.

UK / Europe

Despite the Eurozone’s economic upturn, growth in employment and improved consumer and business confidence during 2017/18, European markets delivered more modest share market returns compared to its global peers. Predictably in a region as diverse as the Eurozone, country specific economic conditions differed.

Italy’s weak economy and the new Italian government’s expenditure plans created market concerns late in our financial year.

Germany ‘s market (DAX) was also spooked by the US threat to impose tariffs on car imports with their market falling 0.2%10 over our financial year.

Continuing uncertainty about Britain’s withdrawal from the European Union (EU) and its impact on the economy failed to adversely impact the performance of the FTlOO index , which increased by 8.7%.

Asia

Growth in China’s economy stabilised at a 6.8%8 annual rate over the past year. China continues to manage a complicated transition in economic growth drivers from industrial activity and exports towards domestic consumption. Industrial production has slowed and settled at a 6% pa growth pace while retail sales are growing at 9% pa. After performing strongly in the first half of the year, China’s SSE Composite index lost considerable ground and closed 10.8% lower for the year.

The imposition of tariffs and fears of a trade war between China and the US were clearly adverse for the market . However, larger cap Chinese companies listed on the Hong Kong exchange performed better.

Japan’s economy continued to grow over 2017/18 and Japan’s Nikkei index rose in response to the economy’s improvement.

Japan’s declining population has a negative impact on growth however this has been more than offset by other factors such as employment reforms that have increased participation in the labour market and the general health of Japanese companies...

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