During this month we have seen a return to volatility in equity markets propelled by fears of rising global yields and we expect this to continue through the rest of 2016. After mid-month lows the markets ended up little changed by the end of the period. Listed property and infrastructure have had a fairly ordinary month as a result, which has continued into October. These do remain some of the better performing asset classes over the past 12-18 months though. Australian shares have delivered a strong 12 month return, however this was on the back of a very ordinary July/August period in 2015. Never the less, it is pleasing to see a double digit return of 13% for the ASX 200 over the past year.
We are seeing continued stability in commodity prices generally, and this has led to some better earnings expectations into next year. One of the biggest moving sectors was Energy and crude oil which leapt 7% on the back on an informal OPEC meeting that culminated in capping production at 32.35 million barrels per day. Morgan Stanley have recently upgraded their ASX target on the back of this, and are now seeing less downside risk to the Australian market, and a likely trading range of between 5,200 points and 5,800 points over the next 12 months (currently 5,400). Further assisting the outlook are better than expected numbers out of China last week, which may signal an end to the deflationary pressures that have plagued markets over the past few years.
Elsewhere, all eyes remained on the Federal Reserve and their September meeting. Although a strong case was made for rising interest rates, the release of a weak payrolls report was enough for Yellen to keep rates on hold. Significantly, three dissenting policy makers voted to lift the target range. As such, the market places a high probability on an interest rate rise in December.
Locally, following the RBA’s interest rate cut in August the market will now look ahead to the November meeting where the prospect of a rate cut remains remote.
While the investment landscape has had a shaky year so far, we remain cautiously optimistic for the remainder of 2016 and leading into 2017.