Outlook for 2017
What’s next for 2017?
The start of 2016 was one that started to worry investors. However, as the year went on and we went through the events of the US election, Brexit and the Italian referendum, the Australian share market recovered and towards the latter stages of the year, performed very well.
If you maintained a long-term investment perspective and stuck to your financial goals, 2016 was a good year, considering inflation was only 1.5%.
Trump
Since Donald Trump became president we have seen markets all over the world display uncertainty and therefore higher levels of volatility. President Trump’s tweets, his war against the media and the establishment often send the market in all sorts of directions, which is likely to continue.
President Trump is a businessman, and will look towards improving the American economy through increases in infrastructure spending, cutting corporate and personal tax rates, reducing red tape and regulation for various industries and increase government spending. With the combination of both supply and demand side improvements, his policies will likely bring a well needed boost to the American economy.
Trade deals? We have already seen President Trump eliminate any hope of signing the Trans-Pacific Partnership (TTP), an agreement between several countries including Australia Canada, New Zealand, Chile and more, which has been seven years in the making. He will look towards renegotiating various trade agreements with existing trade partners and will take a tougher stance on imports from China and Mexico.
Europe
After Brexit and the Italian Referendum, it was thought that the Eurozone would soon dismantle. However, AMP’s Chief Economist Shane Oliver says “There are three key reasons why it won’t break up… well at least not yet:
- Most of Europe does not have the problems with inequality that have helped drive Brexit and Trump
- Eurozone break up risk arguably peaked a few years ago when austerity and unemployment were at their peak
- Support for Eurosceptic parties have not picked up since Brexit and Trump and support for the Euro in mainstream Europe remains high”
Asia
China’s growth seems like it will continue around the 6.5%[1] mark and not much lower, as the Chinese government will still continue to push its economic growth. The transition from manufacturing to the services sector as well as rising producer prices means growth in China will continue.
However geo-political problems between the US and China in regard to the South China Sea and its Trade could see political tensions rise and could be displayed throughout the markets.
Australia
Michael Blythe, Chief Economist of the Commonwealth Bank says “Economic growth in the year ahead will be about more than just the changing commodity story. The incipient infrastructure boom will become a more important driver of economic activity. Favourable weather conditions mean a farm ‘boom’ is under way. And the economy will continue to reap the benefits of rising Asian incomes. Sectors like agriculture, education, tourism, health and financial services will benefit”.
It appears that it is more than likely that the Reserve Bank of Australia will cut official rates as opposed to increasing them. This would be due to low inflation, a cooling housing market and weak business confidence. This means investments such as cash and bank deposit will still remain poor.
Shane Oliver also explains that there are five good reasons why Australia won’t have a recession:
- Interest rates can still fall further if need be
- The drag on the economy from falling mining investment is fading and should bottom in the next year or so
- National income is rising thanks to increasing commodity prices
- Sectors such as tourism and higher education (helped by a low AUD) along with state capital spending should help offset the gap left by slowing housing investment
- Stronger export volumes will provide a partial offset to lower commodity prices.
What we think…
Unfortunately, we do not have a crystal ball. The market keeps ticking along but with geo-political matters providing market ups and downs, it is important not to be put off by rough patches. Yes, 2016 was a year of surprises (Trump!) and yes the markets were volatile, but for those who kept their investment strategies and financial targets, 2016 would have been a good year (considering inflation was only 1.5%).
In this current climate Investors should consider if their investment/super portfolio is structured in a way that will provide the greatest potential to achieve their long term financial goals and objectives. Importantly, Investors should ignore the short term noise (yes the media went crazy this year!) and make rash ‘knee-jerk’ type changes without giving appropriate consideration in view of their personal circumstances.
If you have any questions or wish for us to look-over and review your investments let us know, we can help, after all that’s what we do!
Sources:
https://www.commbank.com.au/guidance/newsroom/year-ahead-more-balanced-growth-201612.html
[1] http://www.ampcapital.com.au/article-detail?alias=/olivers-insights/january-2017/2017-list-of-lists-macro-investment-outlook