Financial Year-End wrap up: Brian Parker Video
Financial year 2009 has been another tumultuous year for investors. In his Financial Year-End Market Wrap Up video, MLC Investment Analyst, Brian Parker analyses:
- how global economic and financial conditions affected investment markets over the last year
- what needs to happen for the ‘green shoots’ economic recovery to continue, and
- what this may mean for future returns.
A summary of the video:
MLC’s view is that prospects for the world economy look considerably brighter than they did late last year, however, they caution against becoming too optimistic about just how strong any global economic recovery is likely to be.
Properly repairing household and financial sector balance sheets, particular, but not exclusively in the English speaking economies is going to take time, and in the process of that repair job, consumers are likely to go for an extended period where any growth in spending is slower than the growth in incomes. Similarly, it is expected that banks and other financial institutions in those economies and elsewhere will remain much more cautious providers of credit for some time to come.
For Australia, a run of better than expected economic data, including some key data on retail spending and housing has fuelled a good deal of optimism. It looks like not only has Australia avoided a recession – technical or otherwise – but that a return to solid growth is at hand.
Regrettably, MLC don’t share that optimism. While a recovery in housing activity does seem likely, and retail sales have been better, MLC believes we are yet to see the full impact of the crisis on business investment, exports, and on employment.
The market’s apparent optimism has led some to expect, and markets to start factoring in, a raise in interest rates sooner rather than later. Once again, that’s a view MLC doesn’t necessarily share. They expect the Reserve Bank, and indeed all the world’s major central banks to be very cautious in removing the massive monetary stimulus that been put in place, meaning that rates are likely to stay lower, for longer, than markets seem to anticipate.
Brain Parker has previously described the current market environment as one in which share markets take three steps forward and two steps back. That’s really only partly accurate. There’s been many steps forward, but few steps back in this market upswing. The economic news has been better, but collectively we are still some way from a point where global consumer and business spending returns to sustained growth.
Even though measures have been taken to restore the world’s banking systems to health, and to restore the availability of credit to the world economy, it is likely to be some time before the private sector’s demand for credit picks up.
It’s worth remembering that financial markets tend to be more forward looking than any analyst, economist, or piece of economic data, and that markets are having an extremely good run on the expectation that economic conditions will improve. While that improvement is now underway, there are some indications that markets have gotten a little ahead of themselves.
MLC spend a lot of time focusing on the medium to long-term outlook for the economy, financial markets, and investment returns. The longer term outlook for returns is still very favourable, but as was noted last month, MLC caution against extrapolating the recent stellar run for world equity markets too far into the future.
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Dan Smith is self employed and is based in Rockhampton. He is the trusted Financial Planner for clients in various locations throughout Australia but predominately in Central Queensland and specifically the geographic area encompassed by the Rockhampton Regional Council.