Following a turbulent political year globally in 2016 many could have expected 2017 to start sluggishly for the Australian share market. The fallout from Brexit and the US Presidential elections, both surprises to many, promised uncertainty for the value of equities. Instead the positive vibes in the US stock market since the election of Donald Trump has seen a spin off for the All Ordinaries index with the indices increasing from just under 5300 in early November to over 5800 by early March.
So, what does this mean for the 2017 year? After two years of sluggish profit performance on the back of low commodity prices and nervousness over the Chinese economy, the end of 2016 has provided some positive momentum moving forward. Some feel the share market may be getting a little overheated, but with a return to growth in profits, and low interest yields putting a damper on fixed deposit investments, there are plenty of factors that can keep the share market rising.
After a recent decline in values commodity prices began to stabilise in 2016. Optimism in this area however is tempered by the risk that the Chinese economy will pull back from its recent strong levels of growth. The impact of U.S policy on imported goods, one of China’s largest export markets, will cause some nervousness in this area until it’s clear what direction this will take. What may be a driver of increased prices is the new U.S. administration who have highlighted infrastructure spending as an important part of their policy. This may help offset any anticipated drop in demand out of China.
Bond and Interest Yield Investments
The increased interest in equity investments in the last months of 2016 saw a sell down in bonds and a slight increase in the yields being offered on these. The long-term outlook for interest rate investments continues to be low with the Reserve Bank likely to make their next movement in the official cash rate upwards - but this is not expected any time soon.
Recent increases in property prices in Australia has resulted in a two-tier market, with both Sydney and Melbourne enjoying strong double digit annual growth while other centres have experienced more subdued results, and Western Australia a decline. Fears of overheating have been offset by a further drop in the official cash rate in 2016 and the likelihood that this will not move much in 2017. Major lenders have however been making some of their mortgage decisions independent on the Reserve Banks direction with the cost of offshore funds driving up their need to increase the mortgage rates on offer. Smaller centres like Hobart, Canberra and Adelaide may enjoy some of the best growth prospects during 2017.
As always, predicting the market comes with its fair share of uncertainty. It seems unlikely that 2017 will experience the level of political turmoil seen last year. The markets absorbed both Brexit and the U.S. elections reasonably well – but with the U.K yet to leave the European Union, a process that will take some time, and the effect of the Trump administration yet to fully take effect, both these issues may yet play a significant part in market movements in the future.
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TGFS Financial Planning is an Authorised Representative of Consultum Financial Advisers Pty Ltd. ABN 65 006 373 995 AFSL No 230323 (Consultum).This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.