Summary of key points


  • Synchronised world GDP growth continues, and it is underpinning earnings per share growth across a number of major equity markets.

  • Major budget deficits in most places except for Germany provide ongoing support for this synchronised growth.
  • If rhetoric turns to reality in trade policy, then a major slowdown in global growth will follow, but we are some way off this prospect, with the main participants still in the posing and chest beating phase.
  • Asset prices continue to be further supported by very benign monetary policy from all of the major central banks.
  • This combination will probably support equity markets through 2018 and into 2019 but we need to monitor conditions in case they change.
  • It is still appropriate to hold a neutral or benchmark allocation to Australian and International equities. 
  • As we have said before, the mercurial behaviour of the Trump administration may cause short run disruptions to equity markets that may well offer the opportunity to accumulate equities at favourable prices, but care is needed when doing so.
  • Over the medium term of the next three to five years, US ten-year bond yields are expected to rise by up to 1.5% p.a. or more to reach levels above 4% p.a. This has historically been an important trigger level for a major sell off in US equity markets.
  • Although a neutral weight to Australian and International equities is warranted, holdings in these asset classes should be well diversified, with a significant weighting to more defensive funds or stocks.
  • In addition, a more significant overweight to alternative equities, which target an absolute return higher than cash or fixed interest and which are not highly correlated with equity markets, would be helpful in stabilising portfolio returns while still achieving a total return significantly above the cash rate.



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