FINANCIAL YEAR 2017-18 IN REVIEW
By Paul Nicol
Financial year 2017-18 proved to be a pleasing year for investors. Returns for all the growth asset classes were extremely solid, predominantly driven by synchronised and accelerating global growth and strong company profits, particularly in the U.S.
Key asset class returns for financial year 2017-18 were as follows:
|Returns for Financial Year 2017-18|
|Australian Shares S&P/ASX 200 Accumulation Index||13.01%|
|International Shares MSCI World in AUD||15.33%|
|Australian Listed Property S&P/ASX 200 A-REIT Accumulation Index||13.04%|
|Australian Shares S&P/ASX 200 Industrials Accumulation Index||7.76%|
|Australian Shares S&P/ASX 200 Resources Accumulation Index||40.70%|
|Australian Shares S&P/ASX Small Ordinaries Accumulation Index||24.25%|
Australian shares (S&P/ASX 200 Accumulation Index) rose 13.01% in 2017-18, finishing the financial year posting its highest ever closing level on the penultimate trading day of the financial year (28th June). This was the sixth straight financial year of positive total returns for the Australian share market.
Most sectors of the Australian share market had a great financial year. Resources were the best, benefiting from rising commodities prices and a weaker Australian dollar. Miners were up strongly virtually across the board, led by BHP and RIO (their prices up 45% and 32% respectively). In the Energy sector, all of the major Oil, Gas and Coal stocks were up strongly led by higher oil prices. Australian Small-Cap stocks also had a very good year returning 24.25%, and A-REIT’s continue to be a model of consistency returning 13.04%.
The sectors of the Australian share market that dragged down returns were the Banks, Telecommunications and Utilities. The big four banks experienced a difficult 12 months with the Royal Commission into the financial sector particularly unkind on the corporate governance of the banks. CBA was the worst affected of the banks falling 12%. Telstra fell 39% over the year as it cut dividends in the face of challenging trading conditions.
International shares (MSCI World in AUD) had a very good year returning 15.33% expressed in Australian Dollar terms, despite the increased level of Geopolitical risk and talks of a trade war late in the financial year. US corporate results were strong, and other global markets including China posted very good returns for the financial year.
Leading into Financial Year 2018-19, it would appear the Australian share market is not overpriced using a variety of valuation measures. However, the expectation is that returns are likely to be more subdued in the coming 12 months. The banks are facing a housing and construction slowdown, rising compliance costs, and management is likely to be consumed by the fallout from the Financial Services Royal Commission. Falling house prices, credit restrictions and rising mortgage interest rates risk hurting local demand for products and services, while exporters face lower global demand if the Trump trade war escalates.
From a global perspective, US inflation is likely to start to stir, and the US Federal Reserve has become more aggressive with interest rate increases.
After several strong investment years in a row, it is reasonable to expect a slowing return environment. Solid global growth, cheap money and reasonable valuations should see returns remain positive, but markets are likely to be more volatile in the coming 12 months predominantly due to an environment of escalated Geopolitical risk. As always, having a well-diversified portfolio is very important.
Senior Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 230876
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