12 December 2016
For the original blog and video click HERE
2016 started badly for investors with worries about global growth and deflation but global growth was modest despite political events, rising bond yields and disappointing Australian growth.
In the video below, AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver, discusses the outlook for global markets in the coming year.
Share markets started 2016 badly on growth and deflation fears before rebounding as such fears faded. The Brexit vote, the US election and the Italian referendum caused only short lived scares. In fact, 2016 saw a classic reversal of some of the relative share market performances that had been seen into 2015, with: US shares outperforming in developed markets as the Fed paused, the US earnings recession ended and investors anticipated stimulus under a Trump presidency; resources shares outperforming as commodity prices rebounded helping the Australian share market to perform relatively well; and emerging markets doing well led by Brazil.
Some other highlights:
- After a huge rally in the first half of the year bonds bond returns were subdued with the anticipation of fiscal stimulus under Donald Trump.
- Real estate investment trusts surged in the first half of the year, but fell as bond yields rose, constraining their returns.
- Unlisted commercial property and infrastructure continued to benefit as investors sought decent income yields.
- Australian residential property returns were solid but slowed and remained concentrated in Sydney and Melbourne.
- Cash rates and bank term deposit returns were poor reflecting record low RBA interest rates.
Overall, balanced superannuation funds returns were subdued, but better than cash and bank deposits.
Figure 1: Investment returns for major asset classes
Past performance is not a reliable indicator of future performance.
* Yr to date to Nov. Source: Thomson Reuters, Morningstar, REIA, AMP Capital
Outlook for 2017 and what to watch
Most growth assets, including shares are likely to trend higher, resulting in reasonable returns in 2017. Against this background:
- Global growth is likely to move just above 3%, ranging from around 2% in advanced countries to around 6% in China.
- Headline inflation is likely to continue to rise as commodity prices rise with core inflation rising more slowly.
- The earnings recession looks to have ended – at least in the US and Australia – with solid earnings growth likely.
- Bond yields have gone up too far too fast in the short term, but the trend is likely to be gradually up.
For Australia, the economy is likely to continue to rebalance away from mining investment and pick up again from its September 2016 quarter decline: