• Shares remain vulnerable to a further correction/consolidation in the next month or so as excessively positive short term sentiment towards them is worked off, as we enter the seasonally weaker month of February and as nervousness around what President Trump will do in relation to tax cuts, deregulation and US-China relations lingers. 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, some acceleration in global growth and the shift from falling to rising profits for both the US and Australia.
  • Still low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds. Australian bonds are preferred to global bonds reflecting higher yields and as the RBA remains well behind the US in moving into a tightening cycle.
  • Commercial property and infrastructure are likely to continue benefitting from the ongoing search by investors for yield, but this demand will wane as bond yields trend higher over the medium term.
  • National capital city residential property price gains are expected to slow to around 3-4% this year, as the heat comes out of the Sydney and Melbourne markets and rising apartment supply hits.
  • Cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around 2.5%.
  • The $A is in the midst of a short term bounce as the $US corrects from overbought levels. However, the downtrend in the $A from 2011 is likely to resume as the interest rate differential in favour of Australia narrows & it undertakes its usual undershoot of fair value. Expect a fall below $US0.70 but little change versus the Yen and Euro.