Investment update for July 2018

Regulations mitigate Australian housing risks as investor demand slows

Amid President Trump’s protectionist stance, Europe and Japan signed a significant free trade deal to eliminate nearly all tariffs, sending a message against protectionism. This trade deal is approximately one-third of the world’s gross domestic product (GDP). To add on, the US and EU publicly announced that they are in negotiation and working toward zero tariffs. However, uncertainty remains as a formal agreement has yet to be made. On the China front, the Trump administration has threatened to impose 10% tariffs on an additional $200 billion worth of Chinese goods.

In the US, the strongest economic growth in nearly four years (4.1%) was reported for Q2 2018, while annual core inflation edged up slightly to 2.3%, and the unemployment rate fell to 3.9%.

To defend its growth while deleveraging, China announced fiscal policy measures to support its real economy, including:

  • Additional tax cuts for companies that expand on research and development expenditure
  • Local government bonds to support infrastructure investment
  • Financial bonds to support small medium enterprises
  • Improving attractions for foreign businesses to re-invest and accelerate implementation of such projects
  • Guiding financial institutions to ensure funding

In Australia, the outlook for the labour market remains positive as the latest data showed a rebound in jobs added, particularly in full-time jobs. The RBA suggested that housing credit growth has declined and investor demand has slowed noticeably. Housing prices in Melbourne and Sydney have also eased. Tighter bank regulations have helped to mitigate housing risks. APRA’s mandatory comprehensive credit regime came into effect on 1 July 2018. This measure gave lenders access to a richer set of data enabling better assessments of borrowers’ credit positions and their abilities to repay loans.

Please view our full investment commentary brought to from our advisors – Frontier – for a more in depth analysis of market conditions this month.

Read our monthly market snapshot.

We trust you find this information useful in understanding how your AvSuper investment is being influenced and welcome your feedback on how we can improve the information we provide to you.