Investment markets

Economic Commentary

October 2009
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The Australian economy has performed surprisingly well given the current global economic market. The Reserve Bank of Australia predicted that the Australian gross domestic product would grow by 0.5 per cent this year and 2.25 per cent in 2010. These figures are far more optimistic than those anticipated earlier this year. Super funds are continuing to gain ground, recording the sixth consecutive month of growth since February 2009, new research has shown. Superannuation research and consultancy firm Chant West has advised the typical fund rose 6.9 per cent in the first two months of the financial year, and 15.3 per cent over the past six months. In August alone, super funds saw growth of 3.12 per cent on average, adding about $2,200 to the average balance of around $71,000*. Despite the recent improvement, funds still remain a long way off their pre-crisis levels. From its 2007 peak to last October's trough, the share market dropped 55 per cent, and its recent rise has made up only about half the losses.

Positive economic news domestically and globally has helped increase sentiment. Retail sales, exports and housing prices have all exceeded market expectations, whilst the unemployment rate was below market expectations.

Leading private sector economists have warned that if unemployment increases, the economy could slow down considerably. NAB’s chief economist Alan Oster said recently that ‘increasing unemployment and a widening output gap through the first half of 2010 will give the RBA time to wait as inflation moderates further’.

Headline inflation has fallen to an annual rate of 1.5 per cent, the lowest in a decade, due to a decline in energy and commodity prices. It is expected that inflation will continue to moderate over the year ahead.

The Australian dollar was at 60 US cents late in 2008, and has since gained significant ground to consistently trade in a range above 80 US cents. The Australian dollar rallied to 13 month highs in late September in anticipation of higher interest rates in 2010. Australian consumer confidence is up to a six-year high according to the August 2009 NAB Business Survey.

Sentiment in global financial markets has continued to improve, being assisted by significant economic stimulus packages been made available around the world. In the United States, there are suggestions that the economy has started to stabilise and the worst has passed. Nonetheless, credit conditions remain difficult, and the effects of economic weakness on asset quality present a challenge. The RBA believes that for the global economic recovery to be durable, continued progress in restoring balance sheets is essential.

Asset class returns for August 2009

The improved economic outlook has benefited share markets, with the Australian stock market surging 19.0 per cent over the three months to August 2009.

International shares (MSCI World ex-Australia) have also rallied off its depressed levels earlier in the year, with the hedged component benefiting from the Australian dollars’ recent appreciation.

In terms of property, the listed sector has outperformed the unlisted sector over the three months to August 2009. Investors are taking heart from the rights issues and repayment of debt which has improved the health of many entities in the listed property sector. Unlisted property, on the other hand, has continued to run on the spot with valuations still under downwards pressure.

* The figures apply to the most common "balanced" funds, in which the allocation to assets such as shares and property ranges from 60 to 75 per cent.

The Chant West data is based on information provided by third parties that is believed accurate at the time of publication. Past performance is not a reliable indicator of future performance. Your objectives, financial situation and needs have not been taken into account by Chant West and you should consider the appropriateness of this information having regard to your objectives, financial situation and needs, and read the relevant Product Disclosure Statement, before making any decisions. Chant West’s Financial Services Guide is available at www.chantwest.com.au