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July 2016 Market Wrap

It was a stellar start to the financial year for the Australian sharemarket. The All Ordinaries index closed July at 5,644.0 points, marking a 6.3% gain for the month!

Global investment markets were positive as investors appeared to disregard the risks associated with 'Brexit' and a forthcoming election in the US. The US Dow Jones Index gained 2.8%, the London FTSE gained 3.4%, the Japan Nikkei 225 gained 6.4% and the Hong Kong Hang Seng Index gained 5.3% in the month.

It is clearly a momentum driven investment market at present. I note that from a macro-economic perspective little changed over the last month – although all investment markets have recorded strong gains.

Murmurs of the Reserve Bank of Australia (RBA) potentially cutting interest rates when it meets tomorrow was perhaps a signal for investors to shift more capital from their defensive assets into the sharemarket. Although investors ought to be cautious when chasing dividend yield alone (given the inherent risks associated with sharemarket investing).

Furthermore, expectations of continued low interest rates have seen property values across all capital cities (with the exception of Perth and Darwin) spike again after the rate of growth slowed at the start of 2016.

The chart below shows the annual change in median dwelling values in Sydney and combined capital cities.

Screen Shot 2016-08-01 at 9.38.57 AM

Source: RP Data

As can be seen from the chart above, the trend in property value growth is starting to increase again. In Sydney alone, median dwelling values have increased by 6.6% in the three months to June 30.

The risks of the property market overheating will be a consideration when the RBA board meets tomorrow. The RBA kept rates on hold at 1.75% per annum in July, however according to many leading economists a 0.25% rate cut will be coming either tomorrow or in September.

The Australian dollar continues to remain strong, with 1 Australian dollar currently buying 76.01 US cents. The Australian dollar has now increased by 4.18% over the past 12 months. This is a key factor in the RBA board wanting to cut interest rates as it will provide support for export industries.

For more information, please contact Ryan Love or Michael Clapham on 1300 856 338.

This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.