Investments: the year that was and the year ahead

By David Costigan, Senior Accountant at Allworths

The year-end 2019 has been dominated by unending negatives, such as trade wars, Brexit, the slowing economy in China, and – on the domestic front – the banking royal commission, drought, a slowing economy and of course the terrible bushfires we are still experiencing.

Despite all of this, the ASX net total returned an exceptional 23.02% for the year-end 31 December 2019 and the median of balanced super funds are expected to return around 11% for the year.

It seems that attempts by central banks around the world to drive up their economies through easing monetary policy has had limited success in improving economic conditions, however, it has been very effective in lifting equity prices. While this conundrum confounds economists, accelerating changes in the world economy (e.g. technology, ageing populations and even globalisation in pushing down prices and as such deflation) are put up as reasons. It seems perverse to blame technology but, unlike previous advances which were both capital and people-intensive, many recent technological advances require limited capital or people.

Looking forward, the consensus seems to be that economists do not appear to be concerned that the slowing down of the world economy will lead to a recession. This is due to the absence of normal excesses, such as high inflation and rapid growth in debt, that usually precede recessions. Additionally, the willingness of central banks to pump money into their respective economies works against the likelihood of a recession.

With the US election coming up in November, Trump will likely avoid bad news, hence reducing the chances of major announcements that affect the markets and the US economy. Although, with Trump, you never really know what may happen!

Now that Brexit is all but confirmed, things have settled in the UK. While its exports to the Eurozone are stagnant, there is a feeling that businesses have been preparing for this by increasingly procuring markets with the rest of the world.

The Chinese economy seems to be struggling due to US trade sanctions. However, this may be good for Australia as, every time their economy slows, they pour money into infrastructure, which in turn pushes up resource prices and consequently companies such as BHP & RIO.

Despite commentary to the contrary, when travelling around Australia, it appeared to me that the Australian Government is pouring money into infrastructure, which is sure to help our economy. The recent bushfires have been horrific and one can only imagine what people impacted by the fires must be going through. However, we cannot help but think the recent headlines suggesting the economic impact of the fires may be off the mark. With the help of government assistance and insurance claims, the impacted areas will rebuild. This will require a large workforce, which, we would have thought, was good for employment and the economy (though maybe not the insurance companies).

All in all, despite the pessimism, it seems more likely than not that 2020 will be another reasonable year for investments. Although, if we were to receive returns similar to this year, it might be time to become more defensive.

Disclaimer

The content of this post is general in nature. Any general advice has been prepared by Allworths Wealth Management Pty Limited AFSL 457 155 without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement before making any decision to invest.