Investment update for December 2018
Global risk-off sentiment intensifies
Global financial markets reached record highs and experienced material lows in 2018. Over the course of the year, many geopolitical developments shook the markets, including US-China trade tensions, the North American Free Trade Agreement (NAFTA) rebranding, US mid-term elections, the pace of US Fed tightening, China’s deleveraging campaign, the end of Europe’s quantitative easing (QE), Brexit and the Italian elections. This was particularly evident in the final quarter of 2018 as risk-off sentiment intensified and equities were sold off by investors.
Equity markets in the US, Europe, United Kingdom, Japan, China and Australia all produced negative returns in December and finished the calendar year in negative territory.
The fixed income sector produced positive returns in December, although the negative sentiment saw yields decline over the month. Australian Government bond index was the best performer, followed by International Government bonds.
In December, the listed property sector outperformed the broader equity market. Australian listed property returns were positive, while global listed property produced negative returns.
It was another challenging month for the Australian dollar as pressure from higher interest rates in the US and China’s economic slowdown continued. It fell against the US dollar, UK pound, Japanese Yen and the Euro in December.
From the year’s high in early October, oil prices tumbled very quickly, and finished the year at US$45 dollars per barrel. This has been attributed to concerns of oversupply and slowing global demand.
The US Federal Reserve lifted interest rates to the range of 2.25%-2.5% at its December meeting. The series of four rate hikes in 2018 resulted from sustained economic growth with robust job reports, wage growth and low unemployment.
China’s economy continued to slow, as the country continued its deleveraging campaign and faced headwinds from the ongoing trade dispute with the US. Retail sales growth has also been weakening in recent months.
The Reserve Bank of Australia (RBA) has been cautious and kept cash rate unchanged at 1.5% throughout 2018, faced with strong economic growth and robust jobs growth, but a concern about housing market. The Australian Prudential Regulation Authority (APRA) announced in December that it was removing the temporary cap on interest-only mortgage lending, which had contributed to the downturn.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
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