Economic and Asset Class Chart Pack March 2011 by 8yP2vf9D

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									Economic and Asset Class update
March 2011 - <Adviser Name>




<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update
March 2011 - <Adviser Name>




<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update
March 2011 - <Adviser Name>




<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update
March 2011 - <Adviser Name>


My Name Financial
<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update
March 2011 - <Adviser Name>

                JV logo


<Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Disclaimer
Important Notice



RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence
Number 238429 and is licensed to provide financial product advice and deal in financial
products such as: deposit and payment products, derivatives, life products, managed
investment schemes including investor directed portfolio services, securities,
superannuation, Retirement Savings Accounts.
The information presented in this seminar is of a general nature only and neither
represents nor is intended to be specific advice on any particular matter. RI Advice Group
strongly suggests that no person should act specifically on the basis of the information
contained herein but should obtain appropriate professional advice based on their own
circumstances.


This information is current as at April 2011.
Past performance is no guarantee of future performance.
Economic update
Global overview

  • In February political issues in emerging markets dominated news flow.

  • China's central bank raised interest rates, the second increase in just over a
    month, intensifying its fight against stubbornly high inflation.

  • Global sharemarkets rose for a third consecutive month in February.
United States: key economic news

  • Economic indicators in the US were mixed; the US Labor Department reported
    in February that the unemployment rate dropped 0.1% to 8.9%, with the
    economy adding a net 192,000 jobs for the month.

  • U.S. economy grew 3.1% in Q4.

  • Inflation rose to 2.1% in February.

  • Federal Reserve leaves rates unchanged maintaining its ultra-loose monetary
    policy, saying the economy was gaining traction while flagging potential inflation
    risks from costlier energy and food.

  • The US housing market remains very depressed.

  • The Australian dollar (AUD) rose against the US dollar, gaining 2.41% during
    February and finishing the month at US$1.0163. The AUD was also stronger
    against other currencies, rising 0.91% against the UK Pound Sterling, 1.93%
    against the Japanese Yen and 1.29% against the Euro.
United States: key stats

        Interest   Growth   Inflation   Jobless   Government   Exchange
          Rate      Rate      Rate       Rate       Budget       Rate


         0.25%     3.10%     2.10%       8.90%      -11.30      85.0400
China: key economic news

  • Data out of China indicated recent monetary policy tightening was beginning to
    slow economic activity.

  • Interest rates were tightened and the Reserve Requirement Ratio (RRR) was
    lifted to reduce liquidity and lending.

  • China inflation hits 4.9% in February - inflation remained high in February,
    fueling further doubt about the government's ability to tackle what officials have
    called their main economic priority this year.

  • China reported a surprise trade deficit for February, its first in 11 months, as
    export growth slowed sharply and import growth remained strong in part
    because of rising prices for oil and other commodities.
China: key stats


     Interest   Growth   Inflation   Jobless   Government   Exchange
       Rate      Rate      Rate       Rate       Budget       Rate

      6.06%     9.80%     4.90%       4.10%       -2.17      6.5600
Australia: key economic news

  • The focus remains on the medium- term economic growth story.

  • In terms of shorter-term economic indicators; the consumer remains on the
    sidelines, retail sales for January indicated growth of only 0.4% for the month
    and 1.8% for the year.

  • Employment growth continued although shifted to part-time jobs. 24,000 jobs
    were added in January, with the unemployment rate remaining at 5.0%.

  • Australian trade surplus narrows in January - in seasonally adjusted terms, the
    balance on goods and services in Australia was a surplus of $1,875m in January
    2011, a decrease of $143m on the surplus in December 2010.

  • The Reserve Bank of Australia left official interest rates on hold at 4.75% in
    February and March, stating that "the currently restrictive stance of monetary
    policy remained appropriate in view of the general macroeconomic outlook".
Australia: key stats


     Interest   Growth   Inflation   Jobless   Government   Exchange
       Rate      Rate      Rate       Rate       Budget       Rate

      4.75%     0.70%     2.70%       5.00%       -2.34      1.0300
Economic data
World economy – key economic
Real GDP growth – year ended
World economy – key economic indicators
  Core Consumer Price Inflation*
             Year ended




                                          Inflation
                                          Year ended
World economy – key economic indicators

      Unemployment rate
Australia – key economic indicators

GDP growth




                                      Consumer Price Inflation*
 Australia – key economic indicators

Labour force




                                 Employment
World interest rates over time


  8

  7

  6

  5

  4

  3

  2

  1

  0
  1997    1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009      2011

         The Reserve Bank of Australia 4.75%           European Central Bank 1.00%

         Federal Reserve 0.25%                         Bank of Japan 0.00%
                                                                                        Source: RBA, BOJ, ECB
                                                                                              As at 31/01/2011
World interest rate movements in detail

   Interest rate movements in the major global economies were unchanged in February.




                                                                    Direction of last
                              Current rate         Last moved
                                                                         move

     Australia                    4.75%              Nov 2010

     United States              0% - 0.25%           Dec 2008

     Europe (ECB)                 1.00%             May 2009

     Japan                        0.00%              Oct 2010

     United Kingdom               0.50%              Mar 2009


                                                                       Source: RBA, BOJ, ECB
                                                                            As at 28/02/2011
Interest rates

        US bond yields
           3 – 5 years




                              US bond spreads
                         To US government bonds, 3–5 years
Interest rates
    Australian bond yields



                               Australian bond spreads
                             Spread over government yields, monthly
Currency movements




      $1 AUD buys:   United States    1.0183


                     Europe (ECB)     0.7373


                     Japan            83.0000


                     United Kingdom   0.6261




                                           Source: DataStream
                                               As at 28/02/2011
Exchange rates
      Australian Dollar against US Dollar, Euro and Yen
Global markets long term performance

               Growth of $10,000 as at 28 February 2011


  $120,000
  $110,000
  $100,000
   $90,000
   $80,000
   $70,000
   $60,000
   $50,000
   $40,000
   $30,000
   $20,000
   $10,000
       $0
        1984      1987     1990     1993     1996       1999    2002        2005   2008         2011
                    $100,169                  $10,530             $62,390                 $56,388
                   Dow Jones               Nikkei              All Ords             FTSE

                                                                                          Source: IRESS
                                                                                            28/02/2011
Global sharemarket returns

   Global Index Summary as at 28 February 2011

                             1 year %     3 years % p.a.   5 years % p.a.

   S&P 500 Index (US)         20.17           -0.09            0.72

   NASDAQ (US Tech.)          24.31              6.99          4.05

   Dow Jones (US)             18.41           -0.11            2.15

   Nikkei 225 (Japan)          4.92           -7.91            -8.10

   Hang Seng (Hong Kong)      13.24           -1.38            7.95

   DAX (Germany)              29.90              2.53          4.64

   CAC40 (France)             10.83           -4.98            -3.84

   FTSE 100 (UK)               11.94             0.62          0.69

   ASX 200 (Aust.)             8.65           -0.26            4.00

                                                                Source: Datastream
                                                                    Date: 28/02/11
Global vs. Australian shares

  Growth of $10,000 invested from January 1998 to February 2011.
   $40,000
   $37,500
   $35,000
   $32,500                                                                                                                     A$30,855
   $30,000
   $27,500
   $25,000
   $22,500
   $20,000
   $17,500
   $15,000
   $12,500                                                                                                                     A$10,608
   $10,000
    $7,500
         98


                 99


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                                 01


                                         02


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      19


              19


                      20


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                                                                                                                           20
                 S&P/ASX 300 Accumulation Index                                       MSCI World Ex Aus $A

                                                                                                                                 Source: Datastream
                                                                                                                   Timeframe: 01/01/98 – 28/02/11
                                                 Data: Australian shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A
  Australian vs. US markets

$12,500                                                          Growth of $10,000 invested in
$12,000
$11,500
                                                                  Australian and US markets
$11,000                                                                    over time
$10,500
$10,000
 $9,500
 $9,000
 $8,500
 $8,000
 $7,500
 $7,000
 $6,500
 $6,000
 $5,500
 $5,000
 $4,500
 $4,000
        7  7   7 -07 07 07 08 08 08 -08 08 08 09 09 09 -09 09 09 10 10 10 -10 10 10 11 11
      -0 -0 -0         -   -   -   -   -        -   -   -   -   -        -   -   -   -   -        -   -   -    -
  J an Mar May Jul S ep Nov Jan Mar May Jul S ep Nov Jan Mar May Jul S ep Nov Jan Mar May Jul S ep Nov Jan Mar


                 S&P/ASX 300 Accumulation Index A$8,081                          Dow Jones A$7,591

                                                                                               Source: Iress as at 28/03/11
Asset class review
International equities

  •   Global shares were higher in February with the MSCI World ex-Australia Index rising 1.34% in
      AUD terms.
  •   Asian markets were mixed in February. In Japan, the Nikkei rose 3.77% for the month, while in
      Hong Kong the Hang Seng fell 0.46%. In the UK, the FTSE rose 2.24%, while in Europe the
      German DAX index and the French CAC40 gained 2.76% and 2.62% respectively.
  •   US sharemarkets continued to move to levels not seen since June 2008 with the Dow Jones
      Industrial Average up 87% since the low in March 2009.
  •   In February, the broadly-based S&P 500 Index was up (+3.2%). This outpaced the technology-
      oriented NASDAQ Composite Index (+3.0%) and the Dow Jones Industrial Average (+2.8%) of
      leading stocks.
  •   European markets were mixed. With no news on the sovereign debt front, all eyes turn to
      meetings in March to determine the longevity of the European financial stability fund. This
      would provide greater certainty for financial markets.
  •   Germany (+2.8%), France (+2.6%) and the UK (+2.2%) all rose. Spain recorded more modest
      gains at 0.4%, while Greece fell 1.0%.
Global emerging markets

  • Emerging markets continued to underperform developed global equity markets in
    February on geopolitical issues and rising inflation.

  • The MSCI Emerging Markets Index delivered -2.9% in Australian dollar terms in the
    month of February.

  • In Asia, Taiwan (-6.5%) and Korea (-6.0%) were the weakest markets followed by
    India (-3.2%) and Philippines (-3.0%), while Thailand (4.5%) and Indonesia (3.4%)
    posted positive returns, in local currency terms.

  • Of the main markets in EMEA, Turkey (-2.6%) and Czech Republic (-1.5%) were the
    only markets to post a negative return. Egypt’s stock market remains shut after
    President Mubarak was ousted by the people of Egypt.
  • Political tensions are high across markets in the Middle East and North Africa
    following the fall of Tunisian and Egyptian Presidents.
  • In Latam, Chilean (-4.2%) market underperformed the EM index in February in local
    currency terms, with Brazil (2%) recording the strong performance in the region.
Australian equities

  • The Australian equity market returned +2.3% in February with reporting season a
    clear focus for investors.
  • The relative performance of Resources (+3.7%) and Market ex-Resources (+1.7%)
    highlights the two-speed nature of this reporting season.

  • The best performers at the sector level were, Materials (+3.7%), Energy (+3.6%)
    and Property (+3.3%). The worst performers were Health Care (-3.2%), Information
    Technology (-3.0%) and Utilities (-2.4%).
Australian fixed interest

  • The UBS Australian Composite Bond Index returned 0.42% over the month of
    February and delivered a 5.51% return over 1 year.
  • The RBA is maintaining a positive outlook for Australia’s growth profile with the focus
    on the ongoing boost to national income from the increasing terms of trade.

  • Some moderate pressure on bond prices exists, as the market contemplates further
    increases in the cash rate, which is offset to a certain extent by global factors such as
    European debt concerns and the ongoing unrest in the Middle East and its impact on
    oil supplies.
  • This has lead to a range trading environment for Australian bonds whereby prices
    alternate between strength because of bad news and weakness on positive growth
    news.
  • The yield on the three-year Commonwealth Government bond maturing in 2014 rose
    from 5.05% to 5.13% over the month.
  • The yield on the 2021 maturity ten-year Commonwealth Government bond fell from
    5.51% to 5.49%.
  • When yields on three-year bonds rise more than the yields on 10-year bonds, this is
    termed a flattening of the yield curve.
International fixed interest

  • International fixed interest produced a return of 0.34% in February to be up 6.98%
    over a year.
  • The data in the US, particularly in relation to manufacturing, continues to improve
    and the expectation is that we will soon see an improvement in the jobs data.
  • The yield on US five-year Treasury bonds rose from 1.94% to 2.14% whilst the yield
    on ten-year US Treasury bonds rose from 3.37% to 3.43% over the month.
  • The European Central Bank (ECB) appears to be becoming more concerned about
    inflation and their recent statements are preparing the market for the, eventual, start
    of interest rate increases.

  • In the United Kingdom, the ten-year government bond yield fell to 3.60% from
    3.66%, whilst ten-year government bond yields in Germany rose to 3.17% from
    3.16%.
  • The Japanese ten-year government bond yield rose to 1.26% from 1.22% over the
    month.
Australian property securities

  • The property securities sector outperformed the broader Australian sharemarket
    for a second consecutive month in February, with the S&P/ASX 200 A-REIT
    Accumulation Index rising by 3.2% over the month of February.

  • All of the major sub-sectors gained ground over the month:

        diversified (+5.3%), industrial (+4.0%), retail (+2.1%) and commercial
         (+0.4%) sectors

  • At the individual stock level the spread of returns widened further in February, to
    reach 36.0%.

  • Specific outperformers included Ardent Leisure Group (+34.3%), Charter Hall
    Group (+8.0%) and Australand Property Group (+6.9%), underperformers
    included Commonwealth Property Office Fund (-1.7%), Abacus Property Group (-
    0.9%) and ING Industrial Trust (0%).
Global property securities

  • The UBS Global Investors Index rose by 3.5% in local currency terms in
    February.

  • The performance of the Index was narrowly focused, reflecting a strong gain in
    the UK (+9.1%).

  • The markets in North America (+4.5%) and Continental Europe (+2.6%) made
    significant headway.
  • Weakness was evident in Singapore (-4.5%) and Japan (-0.3%).
Key asset sector index performance summary

Index Performance Summary 28 February 2011
                                                  1 month   3 month     1      3 Years      5 Years
                                                     %         %      Year %    % p.a.       % p.a.
Australian Equities
                                                   2.33      6.30      9.02     -0.26          4.04
(S&P/ASX 300 Accumulation Index)
Australian Fixed Interest
                                                   0.42      1.38      5.51     7.70           5.89
(UBS Australian Composite Bond Index)
Property Securities
                                                   3.23      7.01      6.85     -13.86        -8.90
(S&P/ASX 200 A-REIT Accumulation Index)
Global Equities
                                                   1.34      7.14      7.57     -2.58         -3.25
(MSCI World [ex-Australia] Index, unhedged)
Global Fixed Interest
(Barclays Capital Global Aggregate Index Hedged    0.53      0.60      7.66     8.20           7.55
$A)
                                                                                         Source: Datastream

Cash
                                                   0.37      1.23      4.78      5.11          5.67
(UBS Australian Bank Bill Index)
Asset class performance over time
Australian sharemarket - S&P/ASX 300

  The Australian sharemarket closed 2.33% higher in February 2011.

  5250

  5000

  4750                 March 6,
                       2009
  4500
                       3133.8
  4250

  4000
                                                                                                 Mar 28, 2011
  3750
                                                                                                      4747.8
  3500

  3250

  3000

        08      08 v-08 n-09 r-09 -0 9 l-09      09 v-09 n-10 r-10 -1 0 l-10      10 v-10 n-11 r-11
    ul-      p-              a      y   u     p-               a    y    u     p-
                                                                                              Ma
  J       Se      No   Ja   M    Ma   J    Se      No   Ja   M   Ma    J    Se      No   Ja


                                                                         Source: Iress - S&P/ASX 300 as at 28/03/2011
1 and10 year rolling returns - S&P/ASX 300 ACC Index
                                       Rolling 1 Year Returns
    50.00%


    30.00%


    10.00%


   -10.00%


   -30.00%


   -50.00%
          1998   1999   2000   2001   2002   2003    2004    2005    2006   2007   2008    2009    2010     2011



                                         Rolling 10 Year Returns
    50.00%


    30.00%


    10.00%


   -10.00%


   -30.00%


   -50.00%
          1998   1999   2000   2001   2002    2003    2004    2005    2006    2007    2008     2009    2010     2011
                                                                        Source: S&P/ASX 300 ACC Index as at 28/02/2011
    Long term asset class performance

$400,000
$375,000
                              Growth of $10,000 over time
$350,000
$325,000
$300,000
$275,000
$250,000
$225,000
$200,000
$175,000
$150,000
$125,000
$100,000
 $75,000
 $50,000
 $25,000
      $0
         1983

                1984

                       1985

                              1986

                                     1987

                                            1988

                                                   1989

                                                          1990

                                                                 1991

                                                                        1992

                                                                               1993

                                                                                       1994

                                                                                              1995

                                                                                                     1996

                                                                                                            1997

                                                                                                                   1998

                                                                                                                          1999

                                                                                                                                 2000

                                                                                                                                        2001

                                                                                                                                               2002

                                                                                                                                                      2003

                                                                                                                                                              2004

                                                                                                                                                                     2005

                                                                                                                                                                            2006

                                                                                                                                                                                   2007

                                                                                                                                                                                          2008

                                                                                                                                                                                                 2009

                                                                                                                                                                                                        2010

                                                                                                                                                                                                               2011
                Australian shares $317,103                                            International shares $160,002                                          Listed property $138,441

                Aust. fixed interest $142,806                                         Cash $97,093                                                           Inflation $31,501

 Timeframe: 01/01/83 – 28/02/11
 Data: Australian shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A, Listed Property Trusts - S&P/ASX 200 Prop Trust, Australian Fixed Interest:
 Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index (Post Sept 89), Cash: 11am Cash Rate (Pre Apr 87) / UBS Bank Bill Index (Post Apr 87).
 Source: RBA, Datastream
Short term asset class performance
  8.00%
                                            Monthly returns as at 28 February 2011
  6.00%


  4.00%


  2.00%


  0.00%


  -2.00%


  -4.00%


  -6.00%


  -8.00%
             Feb-10      Mar-10     Apr-10 May-10          Jun-10      Jul-10    Aug-10 Sep-10          Oct-10      Nov-10 Dec-10         Jan-11      Feb-11



         Australian shares 2.33%                                 International shares 1.34%                              Listed property 3.23%

         Aust. fixed interest 0.42%                              International fixed interest 0.53%                      Cash 0.37%

  Timeframe: 28/02/10 – 28/02/11
  Data: Australian shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A, Listed Property Trusts - S&P/ASX 200 Prop Trust, Australian
  Fixed Interest: Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index (Post Sept 89), Cash: 11am Cash Rate (Pre Apr 87) /
  UBS Bank Bill Index (Post Apr 87)
  Source: RBA, DataStream
Short term asset class performance

         1 year returns as at 28 February 2011
20.00%



15.00%



10.00%            9.02%
                                             7.57%                                                                            7.66%
                                                                        6.85%
                                                                                                   5.51%
                                                                                                                                                         4.78%
5.00%



0.00%
                Australian              International                  Property                 Australian International fixed                             Cash
                 shares                    shares                     securities              fixed interest    interest

   Timeframe: 28/02/2011
   Data: Australian shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A, Listed Property Trusts - S&P/ASX 200 Prop Trust, Australian Fixed
   Interest: Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index (Post Sept 89), Cash: 11am Cash Rate (Pre Apr 87) / UBSA Bank
   Bill Index (Post Apr 87)
   Source: DataStream
Long term asset class performance
                                                   Int'l.                       Aust. Fixed Int'l. Fixed
                       Aust. Shares                               Property                                                  Cash
                                                 Shares                            Interest    Interest
         Feb-86               38.05%             52.70%             7.38%             13.04%          42.83%             17.33%
         Feb-87               59.19%             54.08%            31.44%             11.25%          24.23%             16.62%
         Feb-88              -20.19%              3.42%             8.62%             23.04%           6.47%             14.31%
         Feb-89               24.25%              5.87%             5.66%              5.15%          -7.65%             13.51%
         Feb-90               11.92%              8.90%             8.56%             17.40%           8.25%             18.99%
         Feb-91               -5.03%              0.45%            17.52%             21.71%          14.30%             15.07%
         Feb-92               19.55%              5.27%             7.40%             18.66%          14.80%             10.49%
         Feb-93                3.65%             10.19%             8.13%             17.69%          21.51%              6.56%
         Feb-94               40.33%             22.85%            25.30%             10.31%           6.73%              5.21%
         Feb-95               -8.54%             -3.02%            -3.52%             -1.31%           3.44%              5.98%
         Feb-96               24.65%             19.92%            11.97%             14.57%           7.87%              7.87%
         Feb-97               11.49%             12.31%            18.90%             12.49%           0.21%              7.28%
         Feb-98               14.46%             42.40%            25.97%             13.60%          20.34%              5.49%
         Feb-99               10.70%             24.26%             2.90%              7.10%          19.17%              5.11%
         Feb-00               12.88%             20.57%             4.56%              1.54%          -1.92%              5.17%
         Feb-01                9.33%              0.58%            14.44%             12.48%          22.67%              6.35%
         Feb-02                6.28%            -12.92%            14.11%              3.85%          -0.64%              4.91%
         Feb-03
       Feb-04                -14.70%            -32.44%            10.26%              9.63%           5.89%              4.86%
         Feb-04
       Feb-05                 25.77%             13.89%            14.97%              2.75%         -11.70%              5.03%
         Feb-05
       Feb-06                 29.57%              8.90%            25.56%              5.60%           5.46%              5.57%
         Feb-06
       Feb-07                 23.08%             21.54%            17.28%              6.79%           1.72%              5.80%
         Feb-07
       Feb-08                 23.77%              9.44%            33.29%              4.10%           0.19%              6.16%
         Feb-08
       Feb-09                 -0.76%            -16.20%           -26.34%              2.37%          -1.62%              6.81%
         Feb-09
       Feb-10                -37.26%            -21.14%           -57.44%             14.46%           6.22%              7.13%
         Feb-10
       Feb-11                 45.06%              9.67%            40.57%              3.46%          10.78%              3.47%
    Average
         Feb-11                9.02%              7.58%             6.86%              5.52%           7.66%              4.79%
      Average
    return
                             13.71%             10.35%            10.55%              9.89%            8.74%             8.30%
      return

  Data: Australian Shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A - unhedged, Property Securities -
  S&P/ASX 200 Prop Trust, Australian Fixed Interest: Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index
  (Post Sept 89), Source: Datastream. Note: Returns based on February 1 year rolling returns.
  Diversified investment strategies long term performance

    $300,000

    $275,000                 Growth of $10,000 over time using
    $250,000
                             different risk return strategies
    $225,000

    $200,000

    $175,000

    $150,000

    $125,000

    $100,000

      $75,000

      $50,000

      $25,000

             $0
              1983         1985       1987        1989       1991       1993        1995       1997        1999       2001       2003        2005       2007       2009        2011

                 Defensive (80/20)                 Conservative (60/40)                   Moderate (40/60)                  Growth (20/80)                 High Growth (0/100)
                  $123,223                          $169,814                              $191,254                          $204,964                       $228,561

Timeframe: 01/01/83 – 28/02/11
Data: Australian shares - S&P/ASX 300 Accum. Index, International Shares - MSCI World (ex Aus) in $A, Listed Property Trusts - S&P/ASX 200 Prop Trust, Australian Fixed Interest:
Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index (Post Sept 89), Cash: 11am Cash Rate (Pre Apr 87) / UBS Bank Bill Index (Post Apr 87)
Appendix
Hot topic – the Aussie dollar

  • Currency is a reflection of the relative strength of one economy over another.
  • Australia is currently ahead of almost all developed countries in terms of economic
    recovery, perhaps it is not surprising that we currently have such a strong currency.
  • Higher real interest rates will attract foreign funds in search of better inflation
    protected investment returns.
  • In Australia we have term deposit rates over 6% and inflation less than 3%, the
    Australian dollar’s shining beacon status (for high real returns) has been virtually
    unchallenged.
  • If Chinese growth slows and developed economies start to recover (where central
    banks will let interest rates rise from current levels) – the Australian dollar may
    have already peaked.
  • The AUS$ could drift downwards and may trade within a range of US$0.80 - $1.00
    over the next year or two.



                                                                              Source: Stewart Brentnall,
                                                                       Chief Investment Officer, OnePath
What continues to drive the Australian economy?

  • Demand for most things that are resource-oriented remains high, reflecting the
    continued strong growth in developing markets and, particularly, China.
  • Australia is enjoying a “double whammy” from this, with our terms of trade (export
    prices divided by import prices) rising, not only through demand-based forces but
    also because the Australian dollar has continued to strengthen against the US
    dollar and other currencies.
  • The benefits from strong resource demands are flowing gradually into the broader
    Australian income and consumption, causing the Reserve Bank of Australia (RBA)
    to be vigilant against inflation returning.
  • Interest rates were raised by 0.25% in November, as the RBA did not want the
    economy to overheat, with no further change in December.
  • Employment growth continues to be a little patchier as companies are waiting for
    signs of more sustainable growth in the economy before they expand their
    workforces more aggressively.
  • Individuals are also not spending up or borrowing much, which shows in weak retail
    sales, housing finance and dwelling unit approval figures.
                                                                         Source: Stewart Brentnall,
                                                                  Chief Investment Officer, OnePath
Why is China’s economic development so important to Australia?


  • China is still a developing economy (and will be for some time) and Australia is
    very well placed to supply the raw materials required to feed China’s rapid and
    continuing structural growth.
  • China’s GDP or its capital stock per person is a fraction of the developed world’s
    and its growth, both to cater for burgeoning export demand from trade partners, as
    well as an industrialising domestic economy, underpins its needs for our
    commodities.
  • In 2009, China’s consumption of iron ore, steel and zinc or lead, constituted almost
    half the total global demand for these commodities, which clearly illustrates the
    accelerated growth taking place.
  • The Chinese government is managing the economy well and while annual GDP
    growth is below 10%, it is expected to remain at roughly these levels for quite
    some time – good news for Australia.
  • We, of course, need to be aware of the negative impact on Australia of a more
    severe slowdown in China should this happen!
Key themes

  Four key themes that will hold our attention over the coming months:




          Government debt
                                                    United States growth
              defaults




         Queensland floods                           Retirement savings




                                                                       Source: Stewart Brentnall,
                                                                Chief Investment Officer, OnePath

								
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