December 2016 Quarter Market Overview & Market Outlook for 2017
DECEMBER 2016 QUARTER MARKET OVERVIEW & MARKET OUTLOOK FOR 2017
By Paul Nicol
We are pleased to provide our Market Overview for the December 2016 quarter and our Market Outlook for 2017.
Against the backdrop of global instability, geo-political tensions (such as North Korea, Syria and Russia), a weaker Chinese economy, the “Brexit” vote in late June, and the Trump election win in November, investment markets finished the year in a reasonably healthy state.
The first 6 months of the 2016/17 FY was almost a complete reversal of the 2015/16 FY. Resource stocks in Australia have rebounded strongly, bank shares surged, whereas some of the defensive income stocks (the HIP stocks – Healthcare, Infrastructure and Property) have posted more subdued results after a strong year prior.
Once again, the “Santa Claus” rally really kicked in, and from the low point on 9th November, the Australian sharemarket rallied strongly and put on 9.87% in less than 8 weeks.
Most of the top 20 stocks had a good run during the December quarter, and the standout performers were the four banks, BHP, Rio and Suncorp, all generating healthy double digit returns for the quarter, but the laggards in the top 20 were the 3 major HIP stocks, CSL at -6.16%, Transurban at -7.04% and Westfield Corp at -1.93%.
The upwards movement in long term interest rates in Australia and around the world hurt the defensive sectors, but it must be remembered that the HIP stocks have all had a phenomenal run over the last 5 years.
Other interesting news during the December 2016 quarter was the fact that, in November, Australia recorded its first trade surplus in 33 months, spurred on by the fact that the major commodity exports of iron ore, coal and LNG have all basically doubled since their low point in late 2015.
And after growing our economy at a modestly healthy rate of 3.3% through to June 2016, the September 2016 GDP number was negative at -0.5%, our first negative quarter in more than 5 years.
Index results over the year are shown in the table below:
| December Quarter 2016 | Half Year To December 2016 | Calendar Year 2016 | |
| Australian Shares (S&P/ASX 200 Accumulation Index) | 5.18% | 10.59% | 11.80% |
| International Shares (MSCI World ex–Aus in AUD) | 7.80% | 10.05% | 8.57% |
| A–REITs (S&P/ASX 200 A–REIT Accumulation Index) | -0.75% | -2.69% | 13.16% |
| S&P/ASX Small Ordinaries Accumulation Index | -2.45% | 5.84% | 13.18% |
Other important figures at 31 December 2016 compared to the previous year and half year were:
| 31/12/2016 | 30/06/2016 | 31/12/2015 | Calendar Year | |
| RBA cash rate | 1.50% | 1.75% | 2.00% | Down -50bps |
| 90-day Bank Bill Swap rate | 1.81% | 1.99% | 2.38% | Down -57bps |
| 10-year Government Bond rate | 2.79% | 1.99% | 2.85% | Down -0.6bps |
| Gold price | US$1151.70 | US$1314.10 | US$1060.20 | Up 8.63% |
| Oil (WTI) | US$53.72 | US$49.80 | US$37.04 | Up 45.03% |
| Iron Ore | US$80.00 | US$53.40 | US$42.90 | Up 86.48% |
| Australian dollar | US 72.36c | US 73.88c | US 73.06c | Down -0.96% |