2019 Year in Review: A year of highs and lows
Written on the 8 January 2020 by Arrow
It was a year of extremes, with shares hitting record highs and interest rates at historic lows. Yet all in all, 2019 delivered far better returns than Australian investors dared hope for at the start of the year.
The total return from Australian shares (prices and dividend income) was 24 per cent in the year to December.i When you add in positive returns from bonds and a rebound in residential property, Australians with a diversified investment portfolio had plenty to smile about.
Humming along in the background, Australia entered a record-breaking 29th year of economic expansion although growth tapered off as global pressures mounted.
Global economy slowing
The US economy is in good shape, growing at an annual rate of 2.1 per cent. China has fared worse from the trade tensions, with annual growth of 6 per cent its weakest since 1992. In Australia, growth slipped to an annual rate of 1.7 per cent in the September quarter.ii
Despite the global slowdown, Australia continued its run of healthy trade surpluses thanks largely to a 29 per cent increase in iron ore prices.iii
Interest rates at new lows
Rate cuts flowed through to yields on Australian 10-year government bonds which fell to just 1.37 per cent.v Total returns from government bonds (yields plus prices) were up by around 8 per cent.vi
Retirees and others who rely on income from bank term deposits had another difficult year, with interest rates generally below 2 per cent. After inflation, the real return was close to zero. It's little wonder many looked elsewhere for a better return on their money.
Bumper year for shares
Despite low interest rates and personal tax cuts, consumers are reluctant to spend. The Westpac/Melbourne Institute survey of consumer sentiment fell to 95.1 in December anything below 100 denotes pessimism.viii
Property prices recovering
According to CoreLogic, property prices rose 2.3 per cent on average, led by Melbourne and Sydney, both up 5.3 per cent. When rental income is included, the total return from residential property was 6.3 per cent.ix
The Australian government is under pressure to do more to stimulate the economy in the short term to head off further rate cuts by the Reserve Bank. More fiscal stimulus could inject fresh life into the local economy and financial markets.
Overseas, the US-China trade war is far from resolved and could remain up in the air until after the US Presidential election in November. There is also uncertainty over the Brexit deal and its impact on trade across Europe.
The one thing we do know is that a diversified investment portfolio is the best way to navigate unpredictable markets.
If you would like to speak to us about your overall investment strategy, give us a call.