Wealth Managed - 10 January 2017

By David Lane - January 10, 2017

Happy New Year! Welcome to what will no doubt be a very interesting 2017. While this bulletin usually covers activities, announcements and movements of the preceding week, this issue covers these items from the day that our office closed on 23 December 2016 to 9 January 2017.

The global stock markets finished 2016 with a positive bang and have carried the momentum into 2017 so far.   This is quite a contrast to last January which saw heavy losses in the first week, however as was the case in 2016, the returns of the first week of trading provide little or no predictive value for the remainder of the year.   Just as last year experienced significant volatility and ended on the opposite note to which it began, so too could 2017.  

2016 was certainly a volatile year, and for the first half of the year the ASX struggled.  The improvement in commodity prices, combined with improved global sentiment and a return to the major banks as appealing investments saw the ASX recover well in the second half.

Below are the performances of the markets (gross of fees and taxes) to 31 December 2016:

ASSET CLASS:

3 Mths

1 Year

3 Years

5 Years

10 Years

Australian Shares (ASX 200)

5.18%

11.80%

6.59%

11.85%

4.53%

Australian Shares (Small Caps)

-2.45%

13.18%

6.24%

4.87%

-0.28%

International Shares (Unhedged)

7.68%

7.92%

11.54%

18.58%

4.71%

USA (Unhedged)

9.48%

13.04%

16.86%

22.70%

10.46%

Europe (Unhedged)

5.37%

1.33%

3.67%

13.30%

1.02%

Japan (Unhedged)

5.27%

3.37%

10.01%

15.76%

1.44%

Asia ex Japan (Unhedged)

-1.21%

6.46%

7.47%

12.18%

4.63%

Emerging Markets (Unhedged)

1.05%

12.26%

4.59%

8.38%

2.75%

International Shares (Hedged)

4.74%

8.91%

6.93%

12.78%

4.34%

Australian Listed Property

-0.75%

13.16%

18.01%

18.54%

0.44%

International Listed Property (Hedged)

-2.36%

5.99%

12.48%

14.24%

4.00%

Australian Bonds

-2.86%

2.92%

5.05%

4.96%

6.17%

International Bonds (Hedged)

-2.17%

5.24%

6.28%

6.13%

7.42%

Cash

0.44%

2.07%

2.37%

2.79%

4.13%

There is not much we can guarantee about 2017, other than it will be a fascinating year.  Whether we like it or not, Donald Trump will demand much of the world’s attention this year.   He clearly wants to try many new things (or old tricks that haven’t been tried for a while).  Some will get through Congress.  Some won’t.  Some will work, some won’t.  But rather than get caught up in the short term hype and excitement of what may occur in the near term, we must remain focussed on the underlying fundamentals of the economy and financial markets and consider the sustainability of any rally or change.  It will also be very important not to ignore what is happening outside of the United States and to keep a good handle on the risks and opportunities across the globe.   Surprises always come from the areas in which you are not looking.   

News in Review 

  • Australia’s trade balance took the market by surprise by showing a positive figure of $1.24 billion, the first positive figure two years. This was largely driven due to increased exports in rural good and commodities.
  • Australia’s building approvals increased by 7.0% for November, when being seasonally adjusted. This is predominately driven by a strong rise in total dwellings excluding houses.
  • US Non-farm payrolls data showed a gain of 156,000 jobs in December and a slight increase in the unemployment rate to 4.7%, from 4.6% as a result of the participation rate ticking back up slightly.  The biggest gains were in healthcare services and food and drink services adding approximately 30,000 jobs each.
  • US Real Gross Domestic Product (GDP) increased at an annualised rate of 3.5% in the third quarter of 2016, according to the third and final estimate. This was above market forecasts of 3.2% and above the second quarter result of 1.4%.
  • US Consumer Confidence reached 113.7 according to the December survey. This result is the highest seen since August 2001. The increase has been linked to increasing optimism in the economy.
  • US manufacturing expanded at the fastest pace in two years with the Purchasing Managers Index (PMI) increasing to 54.7 for the fourth month of consecutive advances.
  • US non-manufacturing PMI showed a steady result of 57.2 the same as November. Many sectors provided details that there was still business growth although at a slower rate.
  • The UK current account deficit for the third quarter of 2016 was £25.5 billion greater than the second quarter’s deficit of £22.1 billion.
  • The UK’s manufacturing PMI rose to a two and a half year high of 56.1. This rise came from strength in new orders received, particularly from overseas clients taking advantage of the recent weakness in the sterling.
  • UK’s construction PMI grew for the sixth consecutive month to reach 54.2. With the main contributor being residential house building.
  • The UK’s services PMI also increased strongly to 56.2 in comparison to previous month’s result of 55.2. The index is being supported by growth in new work and employment rising.
  • China’s manufacturing PMI was stable with a result of 51.4. This is slightly lower than market expectation of 51.6 and previous month result of 51.7.

Company News

  • Woolworths (WOW) agreed to sell 527 if its petrol stations to BP for $1.8 Billion. BP outbid competitor Caltex and when the deal is finalised will have approximately 39% of the market share. The deal is not expected to be approved and finalised until early 2018.
  • CSL announced that the European Commission has granted them marketing authorisation for CSL Behring’s AFSTYLA, the first and only single-chain product for haemophilia A.
  • Ardent Leisure (AAD), the owner of Dreamworld, announced that following the re-opening of Dreamworld and White Water World on 10 December, patronage was dramatically lower than the previous year.  Revenues were 63% lower than the previous corresponding period, partly due to the staged re-opening of Dreamworld’s thrill rides, and partly due to the negative publicity following the tragedies at the park last year.
Market Indices: S&P/ASX 200 Accumulation Index, S&P/ASX Small Ordinaries Index, MSCI World ex-Australia Index with Net Dividends Reinvested $A, S&P 500 Net Dividends Reinvested, MSCI Europe Net Dividends Reinvested, MSCI Japan Net Dividends Reinvested, MSCI Asia ex-Japan Net Dividends Reinvested, MSCI Emerging Countries Net Dividends Reinvested, MSCI World ex-Australia Index with Net Dividends Reinvested Local Currency, Dow Jones Credit Suisse Hedge Fund Index (USD), S&P/ASX 200 Property Trusts Accumulation Index, Mercer/IPD Pooled Property Fund Index, UBS Global Real Estate Investors Index Local Currency(Before Oct 2004), UBS Global Real Estate Investors Index Hedged(From Oct 2004 - May 2015),FTSE EPRA/NAREIT Developed hedged in AUD Net TRI (From Jun 2015),UBS Australian Composite Bond Index All Maturities (Before Oct 2014), Bloomberg AusBond Composite 0+ Yr (From Oct 2014), Barclays Global Aggregate Index $A Hedged, Citigroup World Government Bond Index $A Hedged, UBS Australian Bank Bill Index (Before Oct 2014), Bloomberg AusBond Bank Bill Index (From October 2014).

 


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