WEEKLY E-MAIL

8 January 2018

CALENDAR YEAR 2017 IN REVIEW

By Paul Nicol

Looking back on 2017, comparatively to recent years, it was a relatively quiet year. Despite the usual worry list, both global growth and company profits accelerated and central banks stayed benign as inflation stayed low, all of which assisted share market returns.

It was certainly a pleasing year for investors. Returns for all growth asset classes in 2017 were extremely solid, primarily assisted by strong returns in the last quarter of 2017. Key asset class returns were:

Australian shares (S&P/ASX 200 Accumulation Index) rose 11.80% in 2017, finishing the year strongly to post its highest closing level for a decade on the penultimate trading day of the year. Small-caps outperformed large-caps on the ASX in 2017 returning 20.02%. Growth in Small Cap IT stocks and Healthcare were notable standouts.

There was high dispersion among S&P/ASX 200 sectors this year, with nearly 50% separating the best performing sector in 2017 (Health Care +26.35%) from the worst (Telecommunication Services -21.30%).

Australian Resource companies (+25.94%) benefitted from rising commodity prices and strong demand. The December quarterly returns for Australian Resource companies in particular were incredibly strong. Synchronised Global growth has seen further increased industrial production and demand for commodities and industrial materials. In the short to medium term Australian resources will continue to benefit from infrastructure spending in the US and China.

International shares (MSCI World in AUD) had a very good year returning 13.32% expressed in Australian Dollar terms. Unfortunately the Australian Dollar (AUD) detracted from the returns of unhedged International shares starting 2017 at US$0.7236 cents and ending 2017 at US$0.7814 cents.

Leading into 2018, the “sweet spot” combination of solid global growth and profits, continued low inflation and benign central banks is likely to continue. However, US inflation is likely to start to stir and the US Federal Reserve is likely to get a bit more aggressive with interest rate increases.

Here in Australia, the RBA is unlikely to start hiking rates until mid to late 2018 at the earliest. It is possible Australian Banks will face further headwinds in 2018. Weighing on investors’ minds will be the Royal Commission into the banking sector, AUSTRAC anti-money laundering probes and continued focus on mortgage stress.

Overall, most growth assets are likely to trend higher, but returns are likely to be more constrained compared to 2017. The main things to keep an eye on are the risks around President Trump; US inflation, increasing bond yields; Australian Banks and residential property prices.

All the best in 2018.

Paul Nicol

Senior Partner
Senior Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 230876

If you have any questions or comments, please email me at paul@gfmwealth.com.au

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