As a new financial year begins, analysis by CommSec indicates the financial year from July 2013 to June 2014 has been a positive one and current momentum looks set to continue going forward in to 2014/15.
Returns on shares, residential property and bonds have all lifted over the past year while interest rates and the Australian dollar have not significantly changed compared to a year ago. The economy has grown by 3.5 per cent over the year to March (latest data), above longer-term averages of around 3 per cent.
“It has been a very good twelve months for our economy. While people may have varying concerns about the Budget, if we take a big picture view it becomes clear that the Australian economy is in a healthy and strong position,” Craig James, CommSec Chief Economist said.
“If five or 10 years ago someone told you that Australia would have inflation near 2.7 per cent, economic growth near 3.5 per cent, unemployment below 6 per cent, a cash rate at 2.5 per cent and the Australian dollar near US94 cents, you perhaps would have been in disbelief. Yet those are the current market conditions in Australia. Add in the fact that the broad trade position has produced the smallest deficit in 34 years and that is the icing on the cake,” Mr James said.
A year ago, CommSec analysts expected the ASX 200 index to lift to 5,400 points by June 2014. That forecast was largely met. In the coming year, CommSec analysts are tipping further growth with the ASX 200 expected to rise to 6,100 points.
Total returns on Australian shares increased by around 18 per cent since the start of the financial year after posting returns in excess of 20.7 per cent in the previous financial year. Apart from the 2003/04 to 2005/06 period, the past two years stand-out as among the best in the past 15 years.
However, despite a solid year for the share market over 2013/14 and improved investor sentiment, there is still a disconnect in behaviour among investors – with a disproportion amount of capital remaining in cash. Research by Investment Trends1, showed SMSF trustees still hold 25 per cent of SMSF assets in cash which equates to $143billion. SMSF investors indicate that around 31 per cent ($45million) of these holdings are “excess cash”, or cash that would ordinarily be invested in active
assets if it weren’t for the current investor sentiment. These trends are indeed representative of investor sentiment across their personal balance sheets.
Eric Blewitt, General Manager CommSec Adviser Services, said there are key drivers for current investor caution.
“FY14 has demonstrated tangible gains in the Australian sharemarket yet in recent data this has only translated into 26 per cent of investors actively taking advantage. The main cause for this reticence continues to be focused on confidence in the market and the ongoing feeling of instability. We believe this is an excellent opportunity for advisers to provide clients with reassurance and advice around investment opportunities that incorporate cash but also go beyond into other areas of asset allocation,” Mr Blewitt said.
Looking ahead, as the economy is re-balancing by moving away from mining construction as a driver of economic growth to increased home construction and exports of resources, CommSec analysis indicates similar economic growth for 2014/15 with economic indicators of unemployment and inflation also likely to hold near the levels of the past year.
These indicators for the new financial year suggest that it will be one that further builds upon the economic growth of 2014/15 and continue to strongly position Australia both domestically and globally.
CommSec predictions at a glance
Economic growth
2.75-3.25% in 2013/14
2.75-3.00% in 2014/15
Inflation
2.50-3.00% end 2014
2.50-3.00% mid 2015
Unemployment
5.50%-6.00% end 2014
5.50-6.00% mid 2015
Cash rate
2.50-2.75% end 2014
2.75-3.25% mid 2015
Sharemarket(All Ords)
5,700 points end 2014
6,100 points mid 2015
Australian dollar
US97c end 2014
US95c mid 2015
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