Find out why the prospects for global sharemarkets are looking surprisingly good
The first three quarters of 2017 have been characterised by robust economic growth in major economies, continued geopolitical tensions and major markets that look through the worry and continue to climb.
Synchronised economic growth in major developed economies against a backdrop of benign inflation and low unemployment continues to be the order of the day.
As a result, most sharemarkets have continued to move higher since the start of the year. Any uncertainty or downward moves have been used by many investors as a buying opportunity.
Risks such as increasing geopolitical tensions on the Korean Peninsula, uncertainty about the implications of central banks unwinding quantitative easing and increasing official interest rates are seemingly being put to one side by investors.
Sharemarket volatility has been remarkably low against this backdrop, which has been a relief for investors.
Here is a snapshot of major economic regions:
United States: Robust economic growth, tepid inflation, growing employment and industrial production have continued despite the US Federal Reserve’s decision to begin increasing the official cash rate. This is further evidence that the US recovery is self-sustaining.
Europe: The Euro zone has managed to continue its upward trajectory economically year-to-date and in the second quarter of 2017 posted GDP growth of 2.3% year-on-year, slightly higher than the 2.2% year-on-year growth of the United States. Despite a number of challenges such as accommodating Brexit, major elections in both France and Germany and continued terrorist activity, there has been a steady improvement in key economic indicators throughout the Euro zone.
China: A resurgence in Chinese economic growth over 2017 appears in place with annualised economic growth continuing at an official rate of 6.9% annualised during the June quarter. Furthermore, the September Purchasing Managers’ Index (PMI) posted its highest gain in over 5 years with a reading of 52.4, driven by increases in new orders from both domestic and foreign demand.
Australia: Australia’s rate of economic growth slowed slightly during the June quarter with an annualised rate of 1.8% p.a. being posted, slightly down from the 2.1% p.a. previously. A robust outlook for economic growth from the world’s second largest economy, China, should provide ongoing demand for Australia’s commodity exports and help provide the economy with a buffer as economic activity in housing related sectors moderates in coming months.
Headwinds for Australian residential property build
Against a backdrop of falling interest rates over the past 25 years, household debt as a proportion of household disposable income has increased strongly.
Fortunately, interest paid as a proportion of household disposable income is not excessive – at this stage.
Nonetheless, Australia’s residential property market faces a number of challenges including the prospect of increased interest rates and house prices that are at historical highs and stretched household affordability measures.
However, it is unclear whether these headwinds will impact prices negatively or merely impede the upward movement in prices. Much will depend on the pace and severity of any increases in mortgage interest rates.
by Jeff Mitchell, Head of Investment Research, Australian Unity Personal Financial Services
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