• Shares have a very solid rally since the election of Trump in November on expectations of a lift in growth and inflation in the US & and the flow through to other economies. Positive global data has also supported equity prices. But, some consolidation in shares and the $US is likely in the near-term as sentiment has become stretched on the upside. There will no doubt also be nervousness post Trump’s inauguration around what the new US President will actually do, US-China tensions and the negative consequences domestically and globally of a higher $US. However, we see share markets trending higher over the next 12 months helped by okay valuations, continuing easy global monetary conditions, fiscal stimulus in the US, moderate economic growth and the shift from falling to rising profits for both the US and Australia.
  • Sovereign bonds are now very oversold and due for a short term pullback in yield which has already started happening in early 2017. But on a medium term view, still low bond yields point to a poor return potential from bonds and the abatement of deflationary pressures as commodity prices head up, the gradual using up of spare capacity and a shift in policy focus from monetary to fiscal stimulus indicates that the long term decline in yields since the early 1980s is probably over. So expect the medium term trend in bond yields to be up.
  • Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yield by investors, but this demand will wane as bond yields trend higher over the medium term.
  • Dwelling price gains are expected to slow, as the heat comes out of Sydney and Melbourne and as apartment supply ramps up which is expected to drive 15-20% price falls for units in oversupplied areas into 2018.
  • Cash and bank deposits offer poor returns.
  • A shift in the interest rate differential in favour of the US as the Fed remains on its path to hike rates should see the long term trend in the $A remain down.