iInvest Eye on the Market

Spring Edition – October 2016

Outlook for Investment Markets – Sept/Oct 2016

Many asset classes, both at home and overseas, ran into heavy weather over the past month, principally because markets started to confront the reality rather than the distant prospect of more-normal monetary policy in the United States. Many asset valuations had made sense only when interest rates looked likely to remain very low and thus were vulnerable when the tide started to turn. There are likely to be further episodes of valuation reassessment in coming months as investors continue to rethink asset prices against a background of only modest global economic growth. Australian assets have also been under pressure, as there is still no clear sign of business activity in the post-mining-boom economy picking up pace.

Without support from a strong domestic economic cycle, Australian equities were not well placed to cope with the global equity sell-off this month. Australian shares had gone sideways for most of August and were slipping in late August and early September even before global concerns kicked in. The sharper falls from Sept. 7 onward mean that the S&P/ASX 200 is now showing a small year-to-date capital loss of 1.3% and a small gain of 2.1%, including the taxed value of dividends.

The biggest contributor to performance has been the resources sector, as it continued to climb back up from its previous 2008-15 slump. Year to date, resources are up 29.2% in capital value. Consumer discretionary stocks (8.1%) and the industrials (3.4%) are also ahead, but declines in consumer staples (0.3%), IT stocks (1.4%), and heavyweight financials (8.6%) all subtracted from performance.

Click Here to Read the Full Newsletter.