We’ve all been hearing about the dramatic movement with the Capital and stock markets over the past few days. Nick Stratus from Solid Financial Advisors shares his views, what it all means and what is still to come.
Financial markets worldwide, including Australian, have begun the year on a negative note, recording one of the worst starts in many years.
Much of it has come about based on concerns around lower growth rates in China, slower global growth and the prospect of tightening US monetary policy.
We have also seen dramatic falls in commodity prices, with oil to it’s lowest since 2003 only adding to the uncertainty.
With worries about global growth likely to linger, we could still see more downside in share markets in the short term. However, this might be an overreaction and I believe that a number of reasons suggest the markets are overly pessimistic:
- The economic data that has come through over the past few weeks has been mostly okay, even though the softness in US December retail sales is a concern, the data suggests that a US recession is unlikely. This is critically important as the US share market sets the direction for global shares.
- The Chinese Renminbi appears to have stabilised for now, albeit helped by jawboning by Chinese officials andPeople’s Bank of China intervention.
- Sentiment is starting to get very negative. This is often a sign that we may be getting closer to market bottoms.
- While the plunge in commodity and oil prices is bad news for producers,it is going to provide a huge boost to consumers and most businesses.
For investors in Australia we are of the view that:
- Shares are trending higher again due to attractive valuations and moderate economic growth. However it is expected that volatility will remain high with further falls most likely.
- Commercial property and infrastructure are likely to continue benefitting from the ongoing search by investors for yield. National capital city residential property price gains are expected to slow down, particularly in Sydney and Melbourne markets.
- Cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around 2.5%. Depending on the job market the Reserve Bank of Australia can be expected to cut the cash rate to 1.75%.
- The Australian dollar is likely to fall lower against the US dollar, as less favourable interest rates and weak commodity prices take hold. Expectations of the Aussie dollar falling to 60 cents by year-end have been mooted.
A very interesting and challenging year to come!
By Nick Stratus – 20th January 2016
Solid Financial Advisors