A quieter few weeks on global stock markets recovering much of the losses earlier in the year. The rally was a combination of improvements in Oil and Iron Ore prices and greater confidence in China’s growth story. Looking over the past 12 months and even longer, there is a very close correlation between our domestic market and its global counterparts reflecting the reality of the borderless markets we now operate in. Market movements of 10/15% at least twice a year are historically common and actually reflect a well functioning market. A current example of consolidation being the proposed merger of the UK and German Stock Exchanges to make a Mega European Exchange. So while we do have some natural advantages locally and remain one of the most prosperous Countries in the world, this is no time for complacency and we will need to keep innovating and adapting if we are to prosper in the future.
Domestically we appear to be running into election mode which generally means that the country will operate on a caretaker basis with limited decisions being made until the poll is finalised and a strong possibility of a Double Dissolution on the 2nd July. Issues such as possible changes in tax rules and superannuation will need to be resolved and it is critical that as a country we get back to making longer term economic plans where we know the rules and can organise our lives accordingly. Uncertainty is bad for business and eventually shareholders, who rely on the dividends from earnings. Either way, this could be a long few months for the Australian Electorate.
Our economic news appears reasonable with 3% GDP well above our global peers and with improvements in Iron Ore Prices and comparative low interest rates we should continue to outperform. Wider issues of negative interest rates and possible global deflation due to the ubiquitous availability of cheap technology looks here to stay with pay increases at 15 year lows across the market. In essence, we may earn less in the future but have greater purchasing power with what we have. This is especially important for retirees living off Allocated Pensions as access to Centrelink benefits tighten next year. Underpinning the cash earnings of our retirement funds are the relatively high dividend yields still around 5% mainly franked which in most cases covers the mandatory annual drawdown. To understand the deflation concept better I will be visiting Japan over Easter to see firsthand the effect this has on investing and retirement decisions.
The sad news overseas in Brussels reminds us how fragile life can be and how confidence can evaporate so quickly. There are always global challenges that from time to time seem overwhelming and yet markets can and do revert to the longer term mean over time. In addition to our own election the US equivalent later in the year could have a significant impact on global economies so again caution is the word. The growth of the Asian region as a key business partner of Australia continues to grow and hopefully business will make the best out of the three recent Trade Agreements with China, Japan and South Korea. This should continue to underpin our growth irrespective of events in Europe and the US.
Locally, we continue to add additional services to meet client demand and staying at the cutting edge of the independent advice market. One of the growth areas is the Aged Care sector and we are developing a dedicated resource in this area to help clients plan well in advance on what is a very complex and emotionally draining area.
We also have good access to new capital raisings on the stockmarket inclusing Listed Investment Companies (LIC’s) so hopefully we can meet all of your financial planning requirements via the one trusted source.
Wishing you a safe and peaceful Easter.
