What 2017 taught investors and what eager investors should know for 2018
By John Grocke (3Min Read | Intermediate)
We can’t predict the future, but we can have a walk down the share market memory lane up until September 2017 and see what may be in store for eager Investors for 2018.
Looking at the calendar year 2017 (until the end of September), John Grocke, Financial Advisor and founder of Johnston Grocke, summarises that investors had a good year, even better than 2016. The returns on investments for the broader Aussie share market were close to 10% and the global share market (excluding Australia) reached roughly 12.5% including dividends!
Global share market return was very strongly supported by the US economy, which currently represents one of the best of the global economies.
Looking forward, global shares are likely to outperform local (Aussie) shares and the strongest contributor is likely to be the US. The tax changes currently being discussed might boost the US economy, once introduced to the market. One of the primary tax changes in the current discussion is that companies which generate profits offshore are likely to get tax concession if they repatriate those profits back to the US. There might be a huge volume of capital coming back to the US, which would push the market strongly.
Risks for the Australian Economy and Globally
A significant risk for our economy is the reliance on China. If China, being our biggest customer for iron and raw materials, slowed materially, Australia would feel that. A direct decrease in demand would have a big impact on our economy.
On a global scale, the risks could be governments defaulting on sovereign debt or financial institutions failing. The non-uniform budget management of European countries keeps impacting the overall financial stability within the union. How long this will last is an interesting question…
If a government can’t afford to pay all its loans back and defaults on its debts, the loans are written off. And guess what that means? Not only would the borrower simply lose all the funds that have been borrowed + future interest, but it will immediately change future interest rates. Future loans are likely to be at much higher rates which will impact interest rates globally.
John thinks we are going to have a challenging political and economic environment globally over the next few years, trying not to sound pessimistic but realistic.
We live in interesting times.
Published December 8th, 2017.