2017/18: another strong year for investment markets
The 2017/18 financial year provided strong performance for global investors as economic growth continued to strengthen across most developed and emerging markets. However, there was a temporary loss of momentum in equity markets in early 2018 as investors increased their expectations of US interest rate rises. This change in sentiment also negatively impacted emerging markets.
Unemployment fell in major economies but despite the low unemployment rates, inflation remained subdued, generally reflecting weak wage growth. This apparent weakening of the link between wage growth and tight labour markets is potentially explained by structural factors, including globalisation and automation as well as the less visible underemployment and a more elastic labour supply.
Global monetary policy continued to be generally accommodative, underpinning growth, although some have taken slow steps towards ‘normalisation’. This process has been led by the US Federal Reserve’s three 25bps rate increases over the 2017/18 financial year and a reduction in its holdings of US Treasuries. Furthermore, the European Central Bank announced that it would cease its quantitative easing programme at the end of the 2018, as scheduled. However, concerns remain surrounding financial imbalances, expanding credit and large increases in property prices, due to this prolonged easy monetary policy. More recently, trade concerns have flared with increasing protectionist pressures across countries, primarily being driven by the US.
In Australia, GDP steadily increased on the back of increased bulk commodity prices. The RBA left the cash rate on hold, balancing concerns of international trade policy uncertainty, low inflation and wage growth, and a recent softening in housing markets in Sydney and Melbourne.
The S&P/ASX300 Index rose 13.2% over the financial year, with most of the gains coming in the second quarter of 2018. Earlier in 2018, volatility increased which resulted in the S&P/ASX300 falling by 3.8% in the March quarter, with Australian equities not immune to a global equity selloff sparked by trade tensions and a resetting of US interest rate expectations. Additionally, the Royal Commission weighed on financials, particularly on the major banks.
Global equities, as represented by the MSCI World ex-Australia Index, rose 12.1% on a hedged basis (in AUD). Unhedged returns were greater (16.0%) due to a depreciation in the Australian dollar over the year. Emerging markets also performed well, with the MSCI Emerging Markets Index rising 12.7% (unhedged) for the year.
In the Property sector, Australian unlisted property generated a 10.3% return over the financial year.
Bond markets provided relatively low returns as yields generally rose across most countries over the financial year. Australian bonds returned 3.1% but outperformed global bonds (1.9%, hedged).
The RBA maintained the cash rate at 1.5% during the year.
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.