Market Commentary – December 2017by Chris Limberg on Dec 31, 2017
The ASX200 index completed a strong quarter raising 6.7% to close at 6,065.
The RBA’s economic outlook continues to improve with growth expected to continue on-trend this year. The mining sector is expected to weaken further for some time to come. The housing market cycle appears to have peaked. Upcoming supply releasing into the market in the coming 24 months has prompted governing bodies to tighten lending standards coupled with other supervisory measures to restrain household debt levels. A large pipeline of infrastructure projects is anticipated to be the next spending wave to support the domestic economy. Employment trends have endured with unemployment hitting a four-year low and fulltime employment growing at its fastest pace in decades. However, Australian households remain cautious given high debt levels and slow income growth constraining consumption.
- The Reserve Bank of Australia (RBA) maintained the cash rate at 1.50% p.a.
- In the labour market unemployment sank to four-year lows to 5.4% despite higher participation levels. Fulltime employment is growing at its fastest rate in decades.
- The housing market is showing signs it has peaked with the Sydney property market prices and clearance rates falling although the Melbourne market continues to forge ahead on the back of continued population growth
- Board members again noted the increase of apartments due for completion in Eastern capital cities but were satisfied with dampening steps already taken
- The Australian dollar remains stable increasing one cent against the US Dollar to US$0.79
- The inflation rate remains at 1.9% delaying any interest rate increases. However, the RBA remains vigilant given the tightening in the labour market is likely to result in improving wage growth and push inflation higher
- US Stock markets recorded another robust quarter with the DOW increasing 10.3% and the S&P 500 6.1% driven mostly by FANG stocks (Facebook, Amazon, Netflix and Google who changed their name to Alphabet)
- The political environment remains dominated by President Donald Trump as North Korea pursues their nuclear ambitions.
- The US is approaching Mid-term elections in November, a key test of the Trump Presidency
Portfolios have continued to evolve as we look to reduce our exposure to equity markets in favour of lower risk asset classes. For example, several portfolios received an allocation to the in demand Australian Unity Healthcare Property Trust whose aim is to provide regular quarterly income with some capital growth over the long term. The fund began 17 years ago in 1999 and has successfully returned 11.84%pa since inception by maintaining high occupancy rates currently over 98%, long term average lease expiry and low levels of gearing. The returns are achieved by focusing on acquiring infrastructure assets supporting the healthcare system including hospitals, medical clinics, nursing homes and pathology centres. An example of an asset is the below medical centre in Newtown. It is the closest practical building located nearby RPA Hospital. Occupancy rates are high because of specialist doctors proximity to RPA Hospital.