A solid start and finish for investment markets, with volatility a continuing story throughout the year
The financial year started strongly, and most equity markets posted positive September 2018 quarter returns, which was driven primarily by continued economic growth in the US. This was despite growing US-China trade tensions resulting from the Trump Administration’s 10% tariff on a further US$200bn worth of Chinese imports coming into effect at the end of September 2018, and China imposing retaliatory tariffs on $60bn of US imports.
Meanwhile, the sustained economic strength in the US prompted the Federal Reserve to raise rates for a third time in 2018, as it moved closer to normalising its monetary policy.
The positive sentiment declined in the fourth quarter of 2018, with markets experiencing sharp downturns, particularly during the month of December. This was largely attributable to market concerns over rising US interest rates, and global trade tensions. This was also reflected in lower bond yields as investors sought defensive assets.
Following the weak December quarter, global risk asset rebounded strongly in the first quarter of 2019, with the turnaround largely due to the Federal Reserve reversing its policy bias in favour of a more accommodative monetary policy, which was complemented by similar moves by other central banks.
Elsewhere, uncertainty surrounding Brexit remained a heightened risk, but the delay of Brexit beyond March to October 2019 provided some respite for the UK equity market. Volatility returned briefly in May 2019 as the US increased the tariff rate from 10% to 25% and China retaliated by increasing from 5-10% to 5-25%. However, markets reacted favourably in late June to news out of the G20 Summit that trade talks were set to resume after a six-week stalemate.
In Australia, economic growth slowed to 1.8% in the year through to March 2019. Amid the softening economic conditions, the Reserve Bank of Australia (RBA) ended a 34-month pause to cut the official cash rate by 0.25% to a historic low of 1.25% in June 2019. This was done in a bid to combat weakening employment, wages and inflation. RBA governor Philip Lowe also signalled that the door would be open to further rate cuts if needed, which the RBA acted on in early July, further cutting the cash rate to 1.00%.
Maritime Super’s investment strategy
As always, Maritime Super’s investment strategy remains focused on long-term fundamentals and diversifying across all asset classes, sectors, regions and markets.