Volatile and unpredictable events were the hallmark of calendar 2011.

A combination of concerns over US debt and unemployment, European sovereign debt, currency values, issues relating to the stability of the European banking system and questions over continuing Chinese growth rates; all weighed heavily on the minds and decisions of investors. Political instability in the Middle East and North Africa, political impasse (US and Europe) and ratings downgrades did not help markets in 2011. Unforseen natural disasters such as earthquakes in Japan and New Zealand, flooding in Bangkok and floods and cyclones in Queensland, topped off a very unsettling year.

Here in Australia, the high Australian dollar (which averaged US$1.03 in 2011) made it difficult for those businesses in tourism, manufacturing and exports. At the beginning of 2011, Australian growth was forecast to be 3.5% (it ended up at 2.75%), unemployment 4.5% (it ended up at 5.3%) and the cash rate 5.5% (which ended the year at 4.25%). The good news is that it looks like inflation will remain under control (i.e. within the Reserve Bank of Australia’s 2-3% band). Inflation is currently sitting around 2.75%.

The prospects of higher unemployment and a move by households to pay down debt has had an impact on retail spending; further crimping growth in our domestic  economy.

On the flip side, it looks like there will likely be  downward pressure on interest rates in 2012; which will assist those with mortgages. Businesses will also benefit from lower borrowing costs.

Australian terms of trade have increased by over 80% over the course of the past 10 years and are now at their highest levels in 140 years. Key valuation indicators such as price-earnings ratios point to a stock market (both here and in many markets overseas) that is quite cheap at the moment – giving good buying opportunities for well researched, active fund managers and well advised investors.

Looking forward, Harvest believe that the process of unwinding the global credit excesses of the past decade may take longer than expected. There will be winners and losers depending on industry sector and there will be companies who will do well within these sectors, while others will continue to find it tough going. Defensive type assets will also need to be watched carefully as interest rates move.

Investors will need good information and advice in order to successfully navigate their way through all of this.

Global stock markets – calendar year, 2011 

Source: Bloomberg, Australian Financial Review

If you would  like to discuss your super and/or investment portfolio with us, we can give you options to consider that will help you better meet your objectives. Simply call us on (02) 8908 4300.

 

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© 2012 Harvest Financial Group Pty Ltd. This Newsletter has been prepared for clients of Harvest. This document contains confidential and proprietary information of Harvest Financial Group (‘Harvest’), and is intended for the exclusive use of the recipient to whom it is addressed. The document, and any opinions on investment products it contains, may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Harvest’s prior written permission. Information on investment management firms contained herein has been obtained from the firms themselves and other sources. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability, including for consequential or incidental damages, can be accepted for any error, omission or inaccuracy in this report or related materials. Opinions on investment products contained herein are not intended to convey any guarantees as to the future investment performance of these products. In addition, past performance cannot be relied on as a guide to future performance. This information has been sourced from Harvest’s independent research house Mercer Investment Consulting Research and other sources.