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Craig James, Chief Economist, @CommSecRyan Felsman, Senior Economist, @CommSec
http://hellasfrappe.blogspot.com.au/2013_07_25_archive.html
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Important InformationThis presentation has been prepared without taking account of the objectives, financial situation or needs of any particular individual. Before acting on the information in this seminar, you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice.
Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group.
Examples used in this presentation are for illustrative purposes only.
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Year in Review Investors braced for surprises in 2017, especially given the number of
European elections to be held over the year and the new era of the Trump presidency in the United States.
But there was a clear absence of surprises. The global economy strengthened and sharemarkets generally rose across the globe. Volatility fell, rather than rose.
The Australian economy probably grew around 2.5 per cent in 2017, down from the decade average of 2.7 per cent. The current annual economic growth rate is 2.8 per cent.
The annual inflation rate stands at 1.8 per cent. Once volatile factors are removed, underlying inflation is also around 1.8 per cent.
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Year in Review The unemployment rate stands at 5.4 per cent, a 4½-year low and down from
5.8 per cent at the end of 2016. In the year to November, 383,300 jobs were created, the biggest annual gain for over 12 years.
Wages grew by 2.0 per cent in the year to September, up from a record (20-year) low of 1.9 per cent.
The Federal Government now expects a budget deficit of $23.6 billion in 2017/18 (1.3 per cent of GDP), down from the earlier estimate of $29.4 billion.
Australia’s population grew by 1.60 per cent in the year to June, down from the decade average of 1.69 per cent.
Business conditions are close to the best recorded in 20 years according to the NAB monthly survey. Consumer confidence is improving as people adapt to the slower growth of wages and prices in the economy.
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Year in Review New car sales stand at record highs on an annual basis. The annual trade surplus stands at a record high of $19.9 billion. Australian home prices grew by 4.2 per cent in 2017 after lifting by 5.8 per cent
in 2016. The Reserve Bank left the cash rate at a record low of 1.50 per cent in 2017. The global economy probably grew by 3.6 per cent in 2017, above the 40-year
average of 3.5 per cent. Growth of 3.7 per cent is tipped for 2018. The US Federal Reserve lifted interest rates three times in 2017, each time by a
quarter of a percent, with the federal funds target rate at 1.25-1.50 per cent at the end of 2017.
The Aussie dollar started the year near US72 cents and ended the year at US78 cents. The actual range in 2017 was US71.60c to US81.24c.
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Year in Review Commodity prices generally lifted over 2017 in response to stronger world
economic growth. Base metals recorded annual gains around 25-30 per cent. Wool lifted 30 per cent and ended the year just off record highs. The Nymex oil price lifted to a 2½-year high of US$60.42 a barrel.
The Australian sharemarket (ASX 200) rose by 7.0 per cent in 2017 (All Ordinaries lifted 7.8 per cent). Total returns on Australian shares (share prices plus dividends) grew by 12.5 per cent in 2017 after rising by 11.6 per cent in 2016. Returns on government bonds rose by 3.5 per cent.
Of the 22 sub-industry sectors, all but four lifted over 2017. Household & personal products sector has the best performer on the Australian market (up 45 per cent) from Capital goods (up 43 per cent). Worst performer was Telecom (down almost 27 per cent) from Retailing (down 13 per cent). The MidCap50 was the strongest size category (up 18 per cent) from the Small Ordinaries (up 16 per cent)
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Year in Review In terms of global sharemarkets, we tracked 73 bourses and all but seven
recorded gains in local currency terms over 2018. While the “best” performer was Zimbabwe (up 124 per cent), the gains were driven by hyper-inflation. Next strongest was Argentina (up 96 per cent), Ghana (up 53 per cent) and Vietnam (up 48 per cent).
Of major markets, the Hong Kong Hang Seng index rose by 36 per cent. The US Dow Jones rose by 25.1 per cent in 2017 with the US S&P 500 index up by 19.4 per cent. In Europe, the UK FTSE rose by 7.6 per cent with the German Dax up 12.5 per cent. In Asia, the Japanese sharemarket rose by 19.1 per cent.
The Australian sharemarket was in 52nd place, with the All Ordinaries up by 7.8 per cent.
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Year in Review For global currencies we tracked the movements of 120 currencies against
the US dollar over 2017. And 68 currencies ended the year firmer against the greenback with 18 currencies largely unchanged while 34 currencies were weaker than at the start of 2017.
The strongest currencies could be found in Eastern Europe with currencies of countries like Poland, the Czech Republic and Serbia up 15-17 per cent against the greenback.
The weakest currencies could be found in Central Asia/Europe as well as Latin America. The Argentine peso lost 17 per cent against the US dollar.
The Euro lifted around 12 per cent against the US dollar in 2017 with the UK pound up around 9 per cent and Aussie dollar up around 7 per cent.
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Year in Review
Key financial indicators 2017: At a Glance
Dec 30 2016 High Low Dec 29 2017 % change
ASX 200 5,665.8 6,088.1 5,611.0 6,065.1 +7.0%
US Dow Jones 19,762.6 24,837.5 19,732.4 24,719.2 +25.1%
AUD/USD, US cents 72.36 81.24 71.60 78.00 +7.2%
90 day bank bills 1.82% 1.82% 1.69% 1.80% -
10 year bond yields 2.77% 2.99% 2.37% 2.67% -
Oil, US$ per barrel 53.72 60.42 42.53 60.42 +12.5%
Gold, US$ per ounce 1,151.70 1,351.20 1,151.70 1,305.20 +13.3%
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Year in Review
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Global Economy Drivers of world economyContribution to growth 2018 (pct points)
1.02China0.56United States0.23India0.09Germany0.07Indonesia0.06France0.06Korea0.05Australia0.05United Kingdom0.04Canada0.04Spain0.04Japan0.04Brazil0.04Turkey0.03Russia0.03Philippines0.03Mexico0.03Italy0.03Netherlands1.17Other countries
3.7WORLDSource: IMF, CommSec
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United States
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China
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Australia
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Prices and Wages
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Job Market
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Home Prices
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Global Comparisons
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Global Sharemarkets
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Australian Sharemarket
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Australian Sharemarket
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Australian Shares
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Australian Industry Sectors
AUSTRALIAN INDUSTRY GROUPSpercent change 2017
10.1Health Care Equipment & Services44.9Household & personal products9.3Food & staples retailing43.2Capital goods7.0S&P/ASX 20037.6Food, Beverages & Tobacco5.8Autos & components36.9Pharmaceuticals & BioTech5.2Insurance33.7Consumer Durables & Apparel4.4Utilities22.9Software & services1.2Real Estate20.6Energy-0.3Commercial & Professional Services19.1Transport-3.4Banks18.5Materials
-13.2Retailing16.8Consumer Services-26.6Telecom Services12.2Diversified Financials
11.5Media
Source: Iress, CommSec
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Australian Industry Sectors
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Australian Industry Sectors
WINNERS AND LOSERSSector performance since 1986
Weakest performanceStrongest performanceWeakest performanceStrongest performanceTechnology hardwareUtilities2002Consumer servicesMedia1986
InsuranceSoftware services2003Diversified financialsTransport1987Technology hardwareConsumer services2004InsuranceRetailing1988TelecommunicationsEnergy2005TransportRetailing1989
Health care equipmentPharmaceuticals & biotech2006RetailingUtilities1990Consumer durables & apparelPharmaceuticals & biotech2007InsuranceMedia1991
Diversified financialsPharmaceuticals & biotech2008TransportMedia1992Pharmaceuticals & biotechRetailing2009Commercial servicesTransport1993
Consumer durables & apparelAutomobiles & Components2010MediaRetailing1994Consumer durables & apparelTelecommunications2011TransportBanks1995
Capital goods Pharmaceuticals & biotech2012RetailingCommercial services1996Consumer durables & apparelMedia2013Consumer servicesFood & staples1997
Capital goods Consumer durables & apparel2014EnergyTelecommunications1998EnergyAutomobiles & Components2015InsuranceTechnology hardware1999
TelecommunicationsCapital goods 2016Software servicesUtilities2000TelecommunicationsHousehold & personal products2017Technology hardwareCapital goods 2001
Source: CommSec
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Australian Stocks
ASX 200 losers 2017, % lossASX 200 winners 2017, % gain-23.3Sigma Health LtdSIG261.3The A2 Milk CompanyA2M-23.3Sthn Cross MediaSXL198.6Lynas CorporationLYC-23.6Seven West Media LtdSWM150.4Wisetech Global LtdWTC-28.1Domino Pizza EnterprDMP123.0Pilbara Min LtdPLS-28.8Telstra Corporation.TLS95.3Seven Group HoldingsSVW-33.2Fletcher BuildingFBU91.9Costa GroupCGC-33.8Ht&E LimitedHT187.3St Barbara LimitedSBM-48.3Mayne Pharma LtdMYX77.0Whitehaven CoalWHC-52.2Myer Holdings LtdMYR74.4Mineral ResourcesMIN-64.8Retail Food GroupRFG70.7Saracen MineralSAR
Source: iress, CommSec
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Large versus small stocks
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Australian Returns
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Australian Interest Rates
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Australian Interest Rates
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Australian Dollar
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Australian Dollar
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Commodity Prices
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Oil & Gold Prices
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Iron Ore & Coal Prices
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Outlook for 2018 Global Economy: The International Monetary Fund tips global economic
growth to lift from 3.6 per cent in 2017 to 3.7 per cent in 2018. The key issue is whether the low growth rates of prices and wages will
remain, thus prompting central banks to remain on the monetary policy sidelines.
Globalisation and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.
Investors will closely watch the path of the US economy in light of recent tax cuts as well as the intention of the Trump administration to pursue increased spending on infrastructure.
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Outlook for 2018 China will remain in the spotlight as it attempts to define a sustainable
course for the economy. Authorities want to achieve a higher standard of material wealth for the Chinese people while at the same time reducing pollution and congestion.
Australia: We expect the economy to grow by 2.50-3.00 per cent in 2018, slightly above the growth range for 2017.
Despite the economy approaching its sustainable ‘speed limit’, inflation is expected to drift higher towards 2.5 per cent over 2018 but globalisation will continue to cap growth of prices.
The nature of the housing market ‘landing’ and path of unemployment to the full employment’ level near 5.00 per cent are key issues for 2018.
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Outlook for 2018 Australian dollar: Last year we thought the Aussie dollar would hold in a tight
trading range of US67-79 cents over 2017. The range was even tighter, with the Aussie broadly between US71-81 cents. Over the past 20 years, the Aussie dollar has, on average, tracked in a US13.4 cent range. We expect a trading range in 2018 of US73-83 cents. Much will depend on whether US tax cuts prove stimulatory, leading the Federal Reserve to lift interest rates.
Interest rates: Over 2017, the cash rate has averaged 1.50 per cent – a record low. But despite the low level of rates, the Reserve Bank is in no rush to change rates in any direction. The Reserve Bank Governor agrees with financial markets, believing that the next move in rates will most likely be up. But Governor Lowe adds that a move is still someway off. Inflation is well controlled and is only expected to edge modestly higher over the coming year.
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Outlook for 2018 Sharemarket: Last year we thought that the All Ordinaries would end 2017
between 5,850-6,100 points. The prediction was largely realised, although clearly a little too conservative. It’s worth noting though that the All Ords lifted 400 points or around 7 per cent in the last three months of the year.
We expect there will be consolidation of the recent solid sharemarket gains during the first half of 2018 before the market resumes its push to reach the record highs set in November 2007.
Both the Australian and global economies are expected to grow slightly above their longer-term average pace in 2018.
The All Ordinaries is expected to end 2018 between 6,500-6,700 points. But as always the focus needs to be on total returns (includes dividends). Total returns on shares are tipped to lift by 10-12 per cent in 2018.
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Outlook for 2018
FORECASTS2017/182016/17
2.50-3.00%2.00%Economic Growth1.75-2.25%1.75%Underlying inflation5.00-5.50%5.70%Unemploymentend 2018mid 2018
1.50-1.75%1.50%Cash rate6,500-6,7006,300-6,500Sharemarket (All Ords)US75-83cUS73-81cAustralian dollar