• The risk of a short term consolidation or correction in shares remains as sentiment towards them remains very high, President Trump could still throw a curve ball at markets and as we enter the seasonally weaker month of February. However, we see share markets trending higher over the next 12 months helped by ok valuations, continuing easy global monetary conditions, fiscal stimulus in the US, some acceleration in global growth and the shift to rising profits in 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 Reserve Bank of Australia 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 Australian dollar has had a short term bounce as the US dollar corrected from overbought levels. However, the downtrend in the Australian dollar from 2011 is likely to resume as the interest rate differential in favour of Australia narrows and it undertakes its usual undershoot of fair value. Expect a fall below US$0.70 but little change versus the Yen and Euro.