The latest Market Update has now been released
Summary of key points
- Nothing much has changed since our last update except that the US equity market has crossed the line into being expensive and property securities are also more expensive.
- We still expect to have low growth, low inflation and low interest rates for the next few years.
- Equity markets are still pricing in low bond yields and growth in earnings that may not be sustainable, so caution is needed so as to not pay too much when investing in equities.
- Investors seeking income returns will be better rewarded by investing in high quality equities (i.e. those that have a sustained ability to pay dividends above the long term bond yield) rather than fixed interest or cash, but total returns from equities, including capital movements, are very volatile over shorter run periods of up to three years.
- Valuation points to the Australian equity market still being fairly priced at the moment, with all others looking expensive.
- Geopolitical risks have increased in the USA, Britain and Europe as well as in China and Japan. We expect them to cause episodes where equity markets decline sharply for months at a time.
- These episodic declines in volatile equity markets offer opportunities for accumulation of stocks or equity funds at more attractive prices that offer the prospect of enhanced long-term returns.
- Investors should use strategically set aside cash to invest in equities when prices are more attractive as part of a sound, long-term investment strategy.