Market Update - First Quarter (July-Sep 2017)

A stable start to the new financial year

The first quarter of the new financial year saw solid returns from the previous year continue.

The Australian share market rose by 0.8% for the quarter (including dividends) and global shares rose by 2.5% for the quarter (including dividends, in Australian dollars). This underperformance by Australian shares is still largely due to the new Bank levy announced in the last Federal Budget. This levy on the four big banks and Macquarie Bank has negatively hit their share prices.

Globally, share prices continued to power ahead, as economic fundamentals continue to improve in most major markets. Inflation remains low, which is proving puzzling for central bankers, but is helping share markets at this stage of the cycle. Whilst the US Federal Reserve has raised interest rates twice in 2017, both have been expected by the market. Hurricanes Harvey, Irma and Maria tore through North and Central America, doing most damage to the American territory of Puerto Rico, as well as southern US states, especially Texas. These hurricanes are expected to have a negative short-term impact on the US economy, but often have a positive medium-term impact as the rebuild begins.

Emerging market shares have outperformed developed market shares in recent months. LUCRF Super has been adding to emerging market shares (more so than developed markets or Australian shares) and this has paid off well so far. Valuations in emerging market shares have begun to catch up with developed markets and we are monitoring the position. The recent rise in emerging markets has been due largely to the broad-based economic recovery. This can also be seen in the recent increases in commodity prices, such as oil and copper (which tend to benefit emerging markets more than developed markets).

Emerging markets have also benefited from the economic recovery in China, in the lead-up to the Chinese 19th
National Party Congress (which occurs twice per decade) in October/November 2017. Whilst China faces a number of near-term challenges, the National Party seems intent on ensuring strong economic growth in the short term at least, which has proven positive for shares in recent months.

It was generally a flat to negative quarter for fixed interest markets, with Australian bonds falling in value as bond yields rose.

The strong performance of shares and low volatility has been despite a recent spate of high volatility in the global political environment. An escalation of tensions between the US and North Korea, which has conducted 15 missile launches and an underground nuclear test in 2017 so far, has many observers watching the situation closely. Whilst military action still seems unlikely, the unpredictability of North Korea under Kim Jong-un and to some extent the US under Donald Trump, has not been reflected in financial markets as yet.  

Looking ahead

The returns from shares, especially international shares, continue to be stronger than normal. This is due mainly to broad-based economic growth that we have not seen at any point since the Global Financial Crisis. However, this is the time when we begin to become quite cautious on shares, as returns could begin to dip before economic growth does. We are keeping a close eye on shares in particular and looking to diversify the portfolio as much as possible. We encourage members to do the same and keep their super or pension invested in a diversified option (or a diversified mix of options) in this environment. 

Latest returns

This table shows how your investment has performed for the quarter and financial year to date. To discuss market conditions or your own financial situation, please call one of our financial advisers on 1300 130 780.

Super/TTR rates

Pre-mixed Investment options1 Jul-30 Sep 2017
MySuper Balanced (default)1.72%
High Growth2.14%
Targeted Return0.53%
Asset class investment options1 Jul-30 Sep 2017
Australian Shares0.94%
International Shares2.58%
Indexed Shares1.80%

Pension rates

Pre-mixed investment options1 Jul-30 Sep 2017
Balanced (default)1.97%
High Growth2.44%
Targeted Return0.78%
Asset class investment options1 Jul-30 Sep 2017
Australian Shares1.10%
International Shares2.86%
Indexed Shares1.97%

Past performance is not a reliable indicator of future performance.