THE last year saw a low but positive return from most investment sectors – cash, fixed interest, Australian and international shares, and diversified portfolios. Only commercial property has provided high returns. This has been disappointing but the previous three years were very good.
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The results reflect a period when there was plenty for investors to worry about. The mining slump continued through the year, worries about the Chinese economy slowing down appeared then faded several times, and investor concerns about probable US interest rate rises continued.
Recently we have seen the surprise British vote to leave the European Union, alarm about a possible Trump Presidency in the US, a very close election here with increased minor party control of the Senate, many terrorist attacks and rising tensions in the South China Sea.
Most of these factors are still of some concern looking forward. On the other hand there are some positive influences at work too. The most powerful of these is record low interest rates in most countries.
Low rates make borrowing cheap for consumers, encouraging retail sales and boosting business turnover and profits.
Borrowing is also cheap for businesses that want to expand and employ more staff.
Very low interest rates also mean conservative investors earn minimal returns on their cash and fixed deposits, pressuring them to consider alternatives. This increases demand for investments with reliable income – commercial property, infrastructure and high dividend shares.
Another important positive for Australia is that there are signs the commodity slump may be bottoming out with oil, iron ore and some other metal prices rising. The iron ore price which used to be above $US150 per tonne and collapsed to under $US40 has recovered to nearly $US60.
Global economic growth has been around three per cent per annum in each of the last four years. Even over the last year while investment returns have been weak the global economy grew almost three per cent. It looks likely to continue at about that rate.
Cash and fixed deposits will continue to provide extremely low returns. Investments that provide higher income will continue to enjoy strong demand and rising prices.
These include property funds and many shares. Shares in companies that are adapting and utilising new technologies should also do well.
Sitting at home until all the traffic lights are green before beginning a journey doesn’t work. While there are some caution signs about there are some strong positive influences, too.
