FINANCIAL YEAR 2018/19:
IT TURNED OUT TO BE A BUMPER YEAR
By Paul Nicol
While it was a volatile ride, financial year 2018/19 proved to be a very good year for investors. Returns for all the growth asset classes were extremely solid, helped greatly by events late in the financial year including a shock Federal election result with the Coalition re-elected with what appears to be a stable political platform and the RBA re-commencing its interest rate easing cycle.
Market index results for the 2018/19 financial year were as follows:
|Half year to December 2018||Full Financial Year 2018/19|
|Australian Shares (S&P/ASX 200 Accumulation Index)||-6.83%||11.55%|
|International Shares (MSCI World ex-Aust in AUD)||-4.56%||11.95%|
|A-REITs (S&P/ASX 200 A-REIT Accumulation Index)||-0.08%||19.32%|
|S&P/ASX Small Ordinaries Accumulation Index||-12.75%||1.92%|
Half way through the financial year, increasing concerns about global growth dominated markets with weaker economic indicators coming out of the US, Europe and China all pointing to global activity slowing. However, early in 2019 investors pushed these concerns aside with Australian shares (S&P/ASX 200 Accumulation Index) rallying strongly, finishing the financial year at its highest ever closing level. This was the seventh 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 again strong returning 15.97% with Iron Ore prices reaching 5-year highs. Australian Small-Cap stocks struggled with investor sentiment favouring large cap stocks and A-REIT’s had another stellar year benefiting from lowering bond yields, both domestically and around the world.
International shares (MSCI World in AUD) had a very good year returning 11.95% expressed in Australian Dollar terms, again outperforming the Australian Share market.
Leading into Financial Year 2019-20, a combination of the recent election result ensuring that there will be no immediate changes to the franking/imputation credit system, 10-year Australian bonds yielding just 1.32% (30 June 2019), and the RBA dropping the cash rate to 1% in early July, the hunt for yield appears seems to have pushed valuations of the Australian market to historically high levels. Some caution now needs to be exercised.
With dividend yields of good quality Australian shares, and bond yields falling so dramatically, the gap between the two has rarely been wider. In response to this, income-seeking investors have pushed valuation to “stretched” levels, but it is important not to “buy yield” rather “invest for yield” meaning that the price you pay for the attractive yield of Australian shares must be considered.
After several strong investment years in a row, and valuations appearing fully priced, it is reasonable to expect a lower return environment. With slowing Global growth, a weaker domestic economy, continued geo-political risks and enhanced valuations, markets are likely to be more volatile in the coming 12 months. As always, having a well-diversified portfolio but perhaps also being a little more cautious in the next 12 months may prove to be wise.
Senior Financial Planner
SMSF Specialist Advisor™
Barron’s Top Financial Adviser 2017 & 2018
Authorised Representative No. 230876
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