Making super and investment decisions: Four tips during COVID-19 and beyond
Money Smart (ASIC)
During these uncertain times, you might be nervous about your investments. It’s important to consider your long-term goals and make well-informed decisions.
Here are some steps to take with your super or investments in shares to ride out ups and downs in the investment markets.
1. Avoid focusing on market volatility
When investment markets are volatile, it can be a good time to review your investment strategy. But don’t make any rash decisions based on recent market falls.
Some investors panic when markets fall and decide to convert all their investments to cash. However, this means you lock in your losses and you miss out on any investment market recovery. Markets typically recover over the long-term.
Diversification across a broad range of asset classes is the best defence to ride out the ups and downs in the markets at any time.
Super in an uncertain investment market
If you’re concerned about your super balance taking a hit, remember super is a long-term investment. Over time it will recover from the ups and downs in investment markets.
If you’re close (5 years or less) to retirement, understand your retirement income options, take your time and avoid hasty decisions.
Consider getting financial information and guidance from:
- a licensed financial adviser
- your super fund
- a Services Australia Financial Information Service officer
2. Don’t try to time the market
It’s not a good idea to sell shares or other investments based on daily headlines.
Even the most skilled and experienced investors have difficulty predicting the best time to buy and sell. You might sell your investments only for markets to recover soon after.
Holding onto your investments, even during downturns, can be an effective strategy if your financial goals and situation haven’t changed.
3. Review your financial goals
Unexpected events can impact your financial goals.
Talk it over with your family, consider your long-term goals and only make well-informed decisions.
If you’ve become unemployed, for example, you might need to cash out some of your investments for short-term expenses. Only do this if you have no savings to draw on and have explored all other options such government support and applying for financial hardship.
If you do have to draw on your investments, only cash out some of them, if you can. That way you can minimise your losses and still have some money invested when the market begins to recover.
If you’re using a financial adviser, now is a good time to ask them to review your financial plan.
4. Beware of investment scams
Beware of cold-calls and unsolicited investment offers and the promise of big returns. If it sounds too good to be true, it usually is.
Making hasty decisions, like panic selling or buying shares, can make you more vulnerable to investment scams.
Scammers exploit fear with fake investment offers promising to recover your losses.
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Who doesn’t love the end of the financial year? Okay, so maybe sorting through a shoebox full of receipts isn’t your idea of fun, but don’t worry. With our handy checklist, you can take some of the headache out of tax time. You might even find ways to give your finances a boost.
The end of financial year has a way of creeping up and catching us unprepared. But this time you can be ready, with a to-do list of tasks that you can tick off as you go.
For instance, now may be the perfect time to put a bit extra into your super before 1 July to make the most of the annual contribution caps. And if you’re a business owner, we’ve also got some useful tips to help you manage your financial obligations and plan for the year ahead.
So as the countdown to 30 June begins, here’s our checklist to start you on your way.
Getting ready for the tax man
- Confirm if you need to lodge a tax return
If you received an income through employment or investments during the financial year, chances are you may need to lodge a tax return after 30 June. If you’re not sure whether you need to do one, you can find out by using the Australian Tax Office’s online tool – ‘Do I need to lodge a tax return?’, or speak to your accountant or tax agent.
- Organise your documents
Your tax return needs to show everything you earned between 1 July 2017 and 30 June 2018. As the first step, gather your payment summaries from your employer, invoices for any self-employed work you’ve done, and bank statements that verify your income.
- Identify your investment earnings
Your tax return must also indicate any income you’ve earned from non-work activities during the financial year. This includes (but not limited to) dividends from shares and rental income from investment properties, as well as capital gains from the sale of investment assets. Make sure you have a clear record of all your investment earnings for the year, with documentary evidence to back it up.
- Collect receipts for donations or gifts
You may be able to claim a tax deduction for donations or gifts you’ve made during the financial year to charitable organisations or other eligible ‘deductible gift recipients’. You’ll need to find all your receipts for these – monetary gifts must be over $2 to be tax-deductible, and different rules apply for gifts of money or contributions, so ask your accountant which ones you can claim.
- Work out your deductions
Depending on your employment situation, you may be able to claim a tax deduction for money you’ve spent on things like your car or other transport, work uniform, tools, home office equipment or education and training expenses. You may also be able to claim deductions on costs you incur in earning investment income (such as interest payments) and super contributions. Your accountant can advise you on what you may be eligible for.
- Calculate child support payments
If you’re making child support payments or providing any related benefits, calculate the total you have paid during this financial year. Depending on your circumstances, these costs may be used to reduce your adjusted taxable income. Your adjusted taxable income is used to calculate your entitlement to a range of Government concessions. Speak to your accountant or tax agent or contact Centrelink for more information.
Sorting out your super
- Make an after-tax contribution
The annual cap for after-tax or ‘non-concessional’ super contributions is $100,000 (or $300,000 in any three-year period, if you are eligible for and apply the ‘bring-forward’ rule). But if your total super balance is $1.6 million or more, your annual cap reduces to nil, while your bring-forward cap is reduced once your total superannuation balance is $1.4 million or more. So if you’re thinking of giving your super a boost, ask your financial adviser how you can make the most of the caps.
- Start salary sacrificing or making personal tax-deductible contributions
The annual cap for pre-tax or ‘concessional’ contributions is $25,000. One way to take advantage of the cap is by salary sacrificing part of your income into super. But even if you don’t reach your cap before 30 June, salary sacrificing might be a strategy worth considering for next financial year, so talk to your financial adviser, tax agent or accountant.
Another way to make use of the concessional cap is to speak with your employer about making personal tax-deductible contributions. Since 1 July 2017, most employees have become eligible to make these contributions whereas previously employees were generally ineligible.
- Don’t exceed your caps
If there’s a possibility you’ve already gone above your concessional or non-concessional contribution cap, work out how much you’ve put into super so far this financial year. If you’ve contributed too much, speak to your financial adviser.
- Find other ways to contribute
If you’re a low income earner, you might be eligible for other types of contributions or government payments – for instance, a split contribution from your spouse, a government co-contribution or the Low Income Super Tax Offset (LISTO). Your spouse may also qualify for a tax offset when making a contribution on your behalf. If you’re not sure what you’re entitled to, ask your financial adviser now so you don’t miss out before 30 June.
Taking care of business
- Organise your paperwork
If you’re a business owner, the type of tax return you need to lodge will depend on the structure of your business. Your accountant will probably want to see your profit and loss statement for the financial year, plus your balance sheet, general ledger report and bank reconciliation report, so it’s best to get these ready in advance.
- Reconcile your payroll
If you employ staff, you’ll need to give them each a payment summary by 14 July so they can lodge their own tax returns. You can also use this opportunity to check that your employees’ salaries are in line with award rates and you’ve paid them the required amount of super.
- Update your financial records
As with each monthly or quarterly Business Activity Statement (BAS) you lodge, make sure you have all the financial documents ready that you’ll need. The Australian Taxation Office website has a full list – yours may include bank statements, a PAYG payment summary, receipts and invoices, plus records of fuel tax and GST.
- Check your depreciating assets
Until 30 June 2018, businesses with a turnover below $10 million per year can now deduct the full cost of any depreciating assets under $20,000 (that were purchased and installed ready for use between 7.30pm AEST on 12 May 2015 and 30 June 2018) and a portion of the cost of assets worth over $20,000. If you’ve made a purchase for your business in the past year, ask your accountant if you can claim a deduction.
- Work out your deductions
Tax time is also when you should review your stock to see if you can claim deductions on anything your business makes, buys or sells. You may even be able to claim a deduction for things like interest on business loans and overdrafts.
- Plan your spending
As many of your business expenses may qualify for a tax deduction, it’s worth thinking strategically about when to pay them. There may be costs you want to pay now so you may claim a deduction for this financial year – and on the other hand, you may want to put off some payments so you can save the deduction for next financial year.
When it comes to taking care of your business commitments at tax time, it’s best to contact your accountant or tax agent. They can help you organise your paperwork, review your deductions and assets and help get other financial records in order for the end of financial year.
Start the next financial year off on the right foot.
Need help getting your finances in shape for the year ahead? Speak to your financial adviser. They can make sure you have the right arrangements in place for your personal circumstances and lifestyle goals.
General information only: The information in this message is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. It should not be construed as financial, taxation or legal advice. Before acting on the basis of this information, you should consider its appropriateness to your own objectives, financial situation and needs. Individual advice can be provided by contacting our office at email@example.com or by phone (08) 9330 8886.
Want to learn more about investing but you’re not sure where to begin? Here are a few key terms every investor should know.
If you’re looking to build wealth for the future, buying a lottery ticket probably isn’t the way to go. A far more reliable option is to invest – but, unlike hitting the jackpot, investing takes time, patience and knowhow. For many of us though, trying to understand investment-speak is like learning another language. But don’t worry – once you get your head around a few basic concepts, you’ll be on your way towards becoming an educated investor. Here are a few common investment terms to get you started.
Your portfolio is the collection of assets you’ve invested in, which might include cash, bonds, shares and property. You may hold different amounts of each asset and they’re all likely to have different values. As an investor, you can manage your own portfolio and choose which assets to buy and sell at which time, or else you can hire a professional to manage it for you.
Cash refers to money you have that isn’t tied up in other assets. It’s often easily accessible when you need it, and it has a clear, specific value. As well as the hard cash you have on hand, it may also include other forms of money that can readily be converted into cash if you need it, such as the balance of your savings account.
Investing in a bond essentially means lending money to the government or a company for a period of time, at either a fixed or variable interest rate. Then, when the bond expires, you get your money back with interest. Bonds are generally considered to be a more secure investment than shares because you know exactly how much you’ll earn and when – but the main risk is if the issuer cannot pay you back.
A share or stock is a portion of a company that’s available for investors to purchase. The amount of a company each investor owns is relative to the total number of shares available; for example, if a company has 100 shares and you buy one, then you become a shareholder who owns 1% of the company. If the company returns a profit and pays income to its shareholders, your dividend is based on the portion you own. Because shares are subject to stock market movements, their value is likely to go up and down in value over the short term – but they also have the potential to earn higher returns than cash or bonds in the long run. This means they may carry higher risk than these other assets.
The most direct way to invest in property is to buy residential or commercial real estate and rent it out to a tenant. Your investment can then pay off in two ways: firstly, through the rental income, and secondly via an increased asset value if you sell it for a profit. You can also invest in property indirectly through an Australian Real Estate Investment Trust (A-REIT). These enable investors to pool their money together in a shared portfolio of commercial and industrial real estate.
When you invest in a managed fund, your money is pooled together with the money of other investors. A fund manager is responsible for all the fund’s investment decisions regarding buying and selling assets. The fund can pay a regular income, but the amount can increase or decrease depending on how the assets perform. The value of your managed fund investment (eg, units) can also fluctuate over time. Although investing in a managed fund gives you less control than direct shares, it may also give you access to a wider range of investment opportunities than you’d have as a sole investor.
When deciding which investments are right for you, it’s important to understand the trade-off between risk and return, and know how to manage investment risk. All investments carry some risk due to factors such as inflation, an economic downturn or a drop in a particular market – even if you choose an investment that’s traditionally considered ‘safe’, such as high-quality bonds. Every investment carries the risk of not returning your investment, and assets with greater changes in their capital value and pricing will move around a lot more, especially in the short term. It’s therefore essential to know and understand the risks of every investment you make.
Asset allocation refers to the mix and value of the various assets and asset classes in your portfolio. The key to getting the right mix is to weigh up your goals, your appetite for risk and the length of time you’re planning to invest – which is different for everyone. Each asset class carries its own level of risk and return: generally speaking, ‘conservative’ assets like cash or bonds offer a safer but lower return than the potential returns on ‘growth’ assets like shares or property.
Diversification is a strategy for reducing risk in your portfolio by investing in a range of assets, with some likely to perform better than others at different times. That way, when one type of investment is underperforming, your other investments will likely still be earning returns. For example, let’s say you’re only invested in shares. If there’s a downturn in the stockmarket, your entire portfolio will be negatively impacted. But if half of your portfolio is invested in other assets, then that half may not be affected.
Return on investment
Your return on investment (ROI) is the amount you earn from an investment relative to how much it cost you. By applying this simple formula, you can compare the profitability of different investments:
ROI = (Gain from Investment – Cost of Investment) divided by Cost of Investment
For instance, if you buy a house for $500,000, earn $25,000 in rental income, and then sell the property for $600,000 – after accounting for $60,000 in total costs (stamp duties, loan interest, legal and agents fees, rates and maintenance etc.) your ROI would be $65,000 divided by the $560,000 spent, which equals an ROI just shy of 12%.
A capital gain is the profit you make when you sell an asset – or the increase in value between what you originally paid and how much the asset sells for. If you sell an asset for less than you bought it, this is called a capital loss. Because your net capital gain forms part of your taxable income, you generally need to report any net capital gain or loss in your tax return for that year. This is the difference between the total capital gain for the year and the total capital loss (including unused loss from previous years), less any relevant CGT discount or concessions.
The yield is the amount of income you receive from an investment, for example, interest, dividends, or rent. They’re usually calculated as an annual percentage based on the cost or value of the asset, and can vary depending on how the market and asset is performing or is expected to perform. But remember, a yield isn’t a guarantee of specific returns. It’s simply an indicator of how a particular investment is currently performing or is likely to perform in the near future.
Need more guidance?
While it’s good to understand the basics, it’s important to realise just how complex investment concepts really are. So if you’re new to investing – or even if you’re a seasoned investor – be sure to talk to your financial adviser to make sure your investments are in line with your lifestyle needs and goals.
This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Mark Giles of Complete Financial Solutions (WA) – Financial Planning (ABN26 050 157 938) is an authorised representative of Financial Wisdom Limited (ABN) 70 006 646 108 AFSL 231138). Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a Financial Adviser before making a financial decision. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom Advisers are authorised representatives of Financial Wisdom. Information in this document is based on current regulatory requirements and laws, as at 10 January 2018, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
When you’re exploring aged care options for a loved one, the process can seem overwhelming. Here’s how to make it a bit easier.
Choosing when to place an elderly relative into a retirement home may be one of the toughest decisions you have to make. And while you want your loved one to be as comfortable as possible in their final years, it’s also important to be financially prepared.
With so many choices available and so many decisions to make, it helps to break down the process into a series of steps. And remember, when the time comes to begin your own aged care journey, you’ll want to be ready – so the sooner you start planning, the better.
Step 1. Finding the right place
The first step is to have your loved one’s needs assessed to determine the right level of care – from semi-independent living to round-the-clock nursing. Free assessments are conducted by community- or hospital-based Aged Care Assessment Teams. You should also consider any additional services your
relative might need in the future, so they won’t have to move again if their health declines.
If you can, visit different retirement facilities together to find an environment your loved one feels comfortable in. Be sure to investigate the social activities and meal options on offer, to ensure they’ll enjoy a happy and enriched life there.
Step 2. Calculating the costs
Although the federal government subsidises aged care costs, there are still various expenses that need be covered. For residential aged care, these include:
Accommodation fees. Prices are set by the facility but may also depend on your relative’s income and assets. Fees can be paid either as a lump sum or in regular instalments.
Basic daily care fee. This covers daily living costs and is fixed at 85% of the maximum single Age Pension – currently $50.66 per day.
Means-tested fee. This may be charged on top of your relative’s daily care fees, and is based on their assets and income. It’s currently capped at $27,232.33 a year.
Extra service fees. Additional fees may be charged for a more comfortable standard of accommodation, or special services like hairdressing or pay TV.
A financial adviser can help you calculate all these costs so you know exactly what to expect.
Step 3. Managing the paperwork
Because the fee amounts vary, you’ll need to lodge a Request for a combined assets and income assessment form with the Department of Human Services. This helps determine how much of a government subsidy your relative will receive towards the aged care costs.
Next, you can start applying directly to aged care facilities to find a suitable placement for your relative. A facility will contact you as soon as a slot becomes available, and they may also require you to enter into a Resident Agreement and Accommodation Agreement.
Step 4. What to do with the family home
Moving into aged care accommodation isn’t cheap, and many people who go into care need to sell their family home to cover the costs. This process can take many months, so you might also have to sort out a loan to manage the initial expenses while the property is on the market.
An alternative may be to rent out the property and use the rental income to help cover your aged care fees.
Your relative’s choice of whether to sell, or keep and rent out their former family home can have significant consequences for the aged care fees they pay, as well as any social security entitlements they receive, so speak to a financial adviser about the best option before taking any action.
Step 5. Making the move
Packing up an entire house or flat and moving into a single room of a retirement home requires a lot of work. As space will be limited, you’ll need to prioritise the most important or valuable items (including those with sentimental value) for your relative to take with them, and then sell or give away the rest.
There will also be other practicalities to deal with, such as changing their postal address and advising Centrelink about the move. Finally, make sure you include your loved one in as much of the decision-making as possible, to help make the transition as painless for them as you can.
This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a Financial Adviser before making a financial decision. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom Advisers are authorised representatives of Financial Wisdom. Information in this document is based on current regulatory requirements and laws, as at 20 September 2018, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted. by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Mark Giles of Complete Financial Solutions (WA) – Financial Planning (ABN26 050 157 938) is an authorised representative of Financial Wisdom Limited (ABN) 70 006 646 108 AFSL 231138). Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
HURRICANES AND MISSILES
As anticipated, the Reserve Bank of Australia left interest rates unchanged at 1.5%. The official rate has now been held steady at this level for more than a year.
The economy expanded 0.8% in the June quarter of 2017, taking the annual pace of growth to 1.8%. The expansion was supported by strength in net exports as well as domestic demand. The figure was broadly in line with expectations, but represented a substantial improvement from the March quarter.
In spite of more than 54,000 jobs being added in August, official statistics suggested that unemployment remained unchanged at 5.6%. The figure remains close to five-year lows.
Lower unemployment appears to be having a favourable influence on consumer confidence, which improved markedly in September following a weaker reading in August.
Business confidence is less positive, with the NAB Business Confidence Index falling to its lowest level this year. Companies appear to be concerned about demand, government policy, and input cost pressure from both energy and wage growth.
The New Zealand economy also advanced 0.8% in the second quarter of 2017, again an improvement on the previous three month period.
The acceleration in the pace of growth reflected improvements in the services and manufacturing sectors and masked weakness in construction and mining activity. The Reserve Bank of New Zealand left interest rates unchanged at 1.75%, as anticipated.
The Federal Reserve Board left official interest rates on hold at 1.25%, but, importantly, signalled that one more rate rise is likely in the remainder before the end of 2017.
The US economy appears to remain in a reasonably healthy state, with GDP growth being upwardly revised to 3.1% yoy for the June quarter. This represented the quickest pace of annual growth since the first quarter of 2015.
In spite of the buoyant conditions, some observers have suggested that the current storm season could affect economic activity and dampen further growth.
The latest figures showed inflation running above expectations (1.9% yoy), appearing to strengthen the case for a further interest rate hike.
Unemployment came in slightly above expectations, at 4.4%, suggesting companies remain cautious on the hiring front.
Data released in September showed that the Eurozone economy expanded 2.3% in the year to 30 June 2017, slightly above the previous estimate of 2.2%.
Among the largest economies in the region, GDP growth accelerated in Spain; was little changed in France and Italy; and slowed in Germany.
In spite of the overall improvement, the European Central Bank held its benchmark refinancing rate at 0.0% and confirmed that it would likely persist with net asset purchases at the current rate of €60 billion per month until the end of December 2017.
The Bank has suggested that significant monetary accommodation continues to be required, although raised its GDP growth forecast for 2017 to 2.2%. This would represent the quickest pace of annual growth since 2007. In the UK, the Bank of England’s Monetary Policy Committee voted to leave interest rates unchanged at 0.25%.
Data showed that UK inflation has accelerated to 2.9%, however, which appeared to increase the likelihood of an interest rate hike in the coming months.
As ever, there was a fair degree of scrutiny among global investors on activity in China. In August, industrial production rose at an annual pace of 6.0%. This followed a 6.4% yoy increase in July and fell short of consensus expectations (6.6% yoy). In fact, August showed the weakest improvement in industrial production since late 2016.
Industrial output increased at a slower-than-expected pace for mining, and electricity, gas and water production, although growth in the manufacturing sector appeared to remain robust.
Meanwhile, authorities started to implement the first of a series of significant reductions in steel production, in an attempt to reduce pollution and to address overcapacity in the industry. This had an adverse influence on iron ore prices and, in turn, commodity-related shares globally.
Colonial First State Global Asset Management
Ongoing geopolitical tensions associated with North Korea’s missile testing program resulted in further volatility in global foreign exchange markets.
In spite of a strong start to the month, the Australian dollar weakened by 1.4% against the US dollar, closing a little above US$0.78.
The Australian dollar also weakened against sterling, which tended to perform well against most currencies. UK inflation data suggested the Bank of England could consider increasing interest rates before the end of the year.
Most commodity prices moved lower. Iron ore, for example, fell almost 20% ahead of China’s National People’s Congress in October and on demand concerns given steel production cuts in China. Industrial metals took a breather following a strong run since the end of June. Nickel (-8.9%) recorded the largest monthly loss, followed by Copper (-4.5%) and Aluminium (-0.1%). Zinc (+2.5%) and Lead (+8.4%) both rose.
Gold fell 2.6% to $1,282/oz on a rising US dollar and expectations that the Federal Reserve will increase US interest rates later this year. This offset ‘safe haven’ demand arising from escalating tensions between the US and North Korea.
Markets turned more positive on oil consumption after the International Energy Agency upgraded demand estimates. Supply discipline also helped prices higher, with OPEC and other oil producers sidelining 16% more supply in August than previously agreed. As a result, the price of oil bucked the broader downward trend across most commodity prices, with WTI crude adding 9.4% to US$51.67 per barrel.
Despite some volatility during the month, the S&P/ASX 200 Index finished flat (0.0%). The Index has added just 0.7% since the end of June, trading in a narrow range of -0.8% to +1.7%.
Health Care (+2.2%) was the best performing sector, led by sector giant CSL. Fisher & Paykel and Japara Healthcare also posted gains. Energy (+1.2%) and Financials (+1.1%) also added value.
The main drag on performance at a sector level was Telecoms (-4.6%). Telstra had another weak month, and has now lost almost 20% since mid-August 2017. Mid-cap telco TPG Telecom also fell sharply after posting lacklustre FY17 results.
Utilities fell by 3.7%, led lower by AGL Energy, APA Group and Spark Infrastructure Group. AGL lost ground after the company announced its intention to close the Liddell Power Station by 2022; a move that has been challenged by the government on supply concerns.
The Consumer Staples sector was led lower by Wesfarmers and Woolworths, both of which finished the month in negative territory. Amazon’s launch of its Australian e-commerce offering is looming – possibly as soon as October or November.
The S&P/ASX 200 A-REIT Index was up a modest 0.5% in September, but still outperformed a flat S&P/ASX 200.
A-REITs were up as much as 2.3% in mid-month, before losing ground as bond yields rose. Investors also appeared to become concerned that the Reserve Bank of Australia might follow central banks in the UK and Canada and start tightening monetary policy earlier than previously thought.
Retail A-REITs (+2.7%) outperformed, with Westfield Corporation the strongest contributor (+5.5%). No material news was announced by the company, but a strengthening US dollar bodes well for earnings; almost 70% of its revenue is derived from the US. Industrial and Office A-REITs were down marginally (-0.6% and -0.5% respectively).
Listed property markets were weaker outside of Australia, with the FTSE EPRA/NAREIT Developed Index (TR) falling -0.2% in USD terms. One of 2017’s strongest performers, Singapore, was the worst performing property market in USD terms (2.4%), with most other markets relatively flat, including the US (-0.0%). The UK was the strongest major market, up almost 2.0% in USD terms.
Global equity markets moved steadily higher over the month, with the MSCI World Index up 2.3% in USD terms.
Markets rose despite concerns over North Korea’s ongoing missile tests and the US Federal Reserve confirming it was going to start normalising its balance sheet from October. The Fed also reiterated its intention to lift rates for a third time this year, likely in December.
The prospect of higher interest rates saw the US dollar strengthen against most currencies, boosting the returns from the MSCI World Index in Australian dollar terms to 3.4%.
The S&P 500 Index largely tracked the MSCI World, rising 2.1% in local currency, while the German DAX was among the stronger performers, rising 6.4%.
Emerging markets fared less well than their developed counterparts, falling -0.4% in USD terms. South Africa and Greece were the main laggards, down -6.4% and -14.0% respectively in USD. Both suffered from country-specific issues, external debt challenges (exacerbated by a stronger US dollar) and struggling economies.
Global and Australian Fixed Interest
Despite continued geopolitical uncertainty surrounding North Korea’s missile threats, global developed government bond yields managed to trade higher in the month, reversing the previous downward trend. The change in sentiment was driven by talk of continued monetary policy tightening, in particular in the US from Federal Reserve Chairman Yellen.
As had been anticipated, the Fed announced a quantitative tightening program following its September meeting.
Less expected was the retention of the target median forecast for 2017, meaning the Fed is still planning one more rate hike this year. This was a surprise to investors, in light of weak inflation prints and the recent hurricanes that have battered the US.
Australian bond markets moved broadly in line with their global counterparts. Yields rose on the back of a more hawkish stance from the US Federal Reserve and positive developments on monetary reform, which is perceived to be positive for the global growth story. Australian 10-year government bond yields rose 13 bps, ending the month at 2.84%.
Global investment grade credit spreads reacted to the ‘risk-on’ market tone, tightening across the major global indices. Specifically, the Bloomberg Barclays Global Aggregate Corporate Index average spread moved 7 bps tighter, to 1.02%.
US credit moved 8 bps wider, with the Bloomberg Barclays US Aggregate Corporate Index average spread closing at 0.96%.
US high yield credit spreads moved notably tighter, with the Bank of America Merrill Lynch Global High Yield index (BB-B) in 26 bps to 2.75% by month end. The high yield market continues to be impacted by downgrades, particularly in the energy and mining sectors.
In Europe, the spread on the Bloomberg Barclays European Aggregate Corporate Index tightened by 3 bps, to 0.96%
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