The Australian sharemarket surged in March, with the All Ordinaries Index increasing 5.2% to close at 4,893.1 points. International markets were also higher. The Dow Jones Index closed up 5.6%, the FTSE closed up 5.9%, the Hang Seng closed up 2.5% and the Nikkei 225 closed up 9.6% for the month.
Markets were buoyed from strong US economic data which led to market increases across the globe. In particular, US manufacturing results confirmed that the US economy has turned. The fear of sovereign debt defaults in Europe (which drove global markets lower in January and early February) appear to have eased for the time being.
We caution that the recent strong market performance has come from comparatively low traded volume. This may potentially lead to higher price volatility for April/May. Dips in the market may represent an excellent buying opportunity for long term investors.
On the domestic property front, we note that housing finance dropped for a fourth straight month in January. We consider this to be a direct result of the easing of the Government’s First Home Owners Grant, rising interest rates and a tightening of bank lending criteria. For buyers of property expect less buyer competition if this trend continues.
In interest rate news, the Reserve Bank of Australia raised the cash rate by 0.25% per annum in March. The RBA board meets next week to discuss interest rates and there are mixed views on whether or not rates will rise in April. The RBA cash rate is currently 4.00% per annum.
We retain our view that interest rates will continue to trend upward over the next 18 months. The timing of any future rate increases is uncertain, however we consider it prudent for clients to factor into their family budgets higher mortgage repayments.
The Australian dollar improved throughout the month on the back of a stronger economic outlook. The Australian dollar is currently buying 91.6 US cents. This time last year the Australian dollar was buying 65 US cents, indicating a gain of over 40% in the value of the currency over the last 12 months.
As a result of the strength of the Australian dollar, we are now comfortable with our clients having a higher proportion of their international assets in an ‘unhedged’ investment.