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What is New

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Oliver's Insights - The 2018-19 Australian Budget – saving a windfall with the hope of (decent) tax cuts to come

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the 2018-19 Budget. The key points are as follows:

 

  • The 2018-19 contains a small welcome boost to households and keeps the budget on track for a surplus.
  • The main risk is that the revenue boost seen this year is not sustained & the budget continues to have relatively optimistic assumptions regarding revenue growth.
  • The impact on the RBA and shares is likely minimal.

 

 

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Trump Trade Wars and Share Market Volatility

 

Shane Oliver, Head of Investment Strategy and Chief Economist comments on

 

The latest bout of share market weakness. The key points are as follows:

 

  • Worries about the Fed, trade wars (the risk of which has been significantly exaggerated) and President Trump generally have increased the risk around the global outlook but are unlikely to drive a major bear market.
  • The key issue is whether the US is about to enter a recession and our assessment remains that a US recession is not imminent. So the pullback in shares since January remains more likely to be corrective rather than the start of a major bear market.
  • The key for investors is to turn down the noise during times like the present and stick to a long-term strategy.

 

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Oliver's Insights - Tariffs, trump, North Korea and other global political risks in the Year of the Dog

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note takes a look at why geopolitical issues are more important for investors these days and what to look out for this year. The key points are as follows:

 

  • Geopolitical issues generate much interest as dinner party conversations but don't necessarily have a significant impact on markets, apart from a bit of noise.
  • But given a backlash against economic rationalist policies, the declining relative power of the US and the ability of social media to allow us to make our own reality, geopolitical risks are higher than they used to be.
  • Key issues to watch this year are: around President Trump given the mid-term elections, particularly on tariffs (notably in relation to China) and the Mueller inquiry; the Eurozone after the messy Italian election and the likelihood that Merkel and Macron will work to build a stronger Europe; North Korea; and China.
  • Given the difficulties in trying to predict geopolitical shocks and their impact it often makes more sense for investors to focus on the investment opportunities they throw up, rather than taking long term shelter from them in low returning cash.

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Oliver's Insights - The pullback in shares – seven reasons not to be too concerned

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the ongoing pullback in share markets. The key points are as follows:

  • The current pullback in shares has been triggered by worries around US inflation, the Fed and rising bond yields but made worse by an unwinding of bets that volatility would continue to fall.
  • We may have seen the worst, but it's too early to say for sure. However, our view remains that it's just another correction.
  • Key things for investors to bear in mind are that: corrections in the order of 5-15% are normal; in the absence of recession, a deep bear market is unlikely; selling shares after a fall just locks in a loss; share pullbacks provide opportunities for investors to pick them up more cheaply; while shares may have fallen, dividends haven't; and finally, to avoid getting thrown of a long-term investment strategy it's best to turn down the noise during times like the present.

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Oliver's Insights - Correction time for shares?

 

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks the pullback seen in US shares last week and the implications going forward. The key points are as follows:

  • The US share market is long overdue a decent correction. This now appears to be unfolding and may have further to go as higher inflation, a slightly more aggressive Fed and higher bond yields are factored in.
  • This will impact most share markets including Australian shares.
  • However, in the absence of an aggressive 1994 style back-up in bond yields or a US recession - neither of which we expect - the pull back in shares should be limited in depth and duration to a correction (with say a 10% or so fall) and shares should have positive returns this year as a whole.
  • However, it's likely to be a more volatile year than last year.

 

Oliver's Insights - Correction time for shares? Oliver's Insights - Correction time for shares? (234 KB)  

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Oliver's Insights - The Australian economy - five reasons growth will continue

The Australian economy - five reasons growth will continue but unlikely to be enough to justify rate hikes until 2019?

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note takes a look at economic growth in Australia and the implications interest rates and investors. The key points are as follows:

 

  • The Australian economy grew 2.4% through 2017, good but well below potential given high population growth.
  • There is good reason to expect growth to continue and pick up a bit: the drag from falling mining investment is nearly over, non-mining investment is turning up, public investment is strong, trade should add to growth and profits are rising. But growth is likely to be constrained to just below 3% this year and underlying inflation is likely to remain low.
  • We don't expect the RBA to start raising rates until 2019 (we were looking for a hike late this year). Australian shares are likely to move higher by year end, but to continue underperforming global shares.

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Oliver's Insights - Review of 2017, outlook for 2018 - still in the "sweet spot", but expect more volatility ahead

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note provides a review of 2017 and takes a look at the outlook for 2018 for investors. The key points are as follows:

  • Despite the usual worry list, 2017 has been pretty good for investors as global growth and profits accelerated and central banks stayed benign as inflation stayed low.
  • The "sweet spot" combination of solid global growth and profits and yet low inflation and benign central banks is likely to continue in 2018. However, US inflation is likely to start to stir and the Fed is likely to get a bit more aggressive. Expect a gradual rise in bond yields and a rising US dollar. The RBA is unlikely to start hiking rates until late 2018 at the earliest.
  • Most growth assets are likely to trend higher, but expect more volatility and more constrained returns. Australian shares are likely to remain laggards.
  • The main things to keep an eye on are: the risks around Trump; inflation, the Fed and the $US; bond yields; the Italian election; China; and Australian property prices.

 

 

 

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The Australian housing market starting to cool (in parts)


Shane Oliver, Head of Investment Strategy and Chief Economist.

Key points are as follows:
 

Australian housing remains overvalued and this has gone hand in hand with 

high household debt. Against this, supply has been constrained and there has 
not been a deterioration in lending standards.

The hot Sydney and Melbourne property markets are showing signs of cooling
  as APRA measures bite. Expect price falls of around 5-10% around 2017.

Property investors need to be careful at this point in the property cycle as 
medium term returns are likely to be constrained.



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