With all of the issues we had to concern ourselves with in 2012 it turned our far better than we might have thought in terms of investment returns and for those brave enough to stick with a diversified investment approach they were well rewarded with some of the best returns since before the GFC.
2012 in review – what were the major themes and how did they pan out
1. No global recession
– it was feared throughout 2012 that the world might once again head into recession and, whilst we did see slowing economic growth and plenty of company earnings downgrades, the recession did not eventuate.
2. Lower interest rates
– a slowdown in growth around the world (weaker economies) resulted in a widespread lowering of interest rates. Interest rates are generally lowered in an attempt to stimulate an economy by making money easier and less expensive to obtain. Cheaper money encourages spending which creates jobs and ultimately leads to a more buoyant economy. .
– 2012 was dominated by the threat of a financial crisis coming out of Europe with many fearing the demise of the Euro. Later in the year however the European Central Bank hinted strongly that it may buy bonds in troubled countries and European leaders seemed to be focussed on defending the Euro and assisting Greece.
4. US Recovery
– 2012 started with fears the US could head back into recession but stable (albeit slow) growth combined with strong technology and manufacturing sectors has helped them to avoid this. After years in the doldrums we also saw an improvement in the housing sector boding well for unemployment and ultimately the economy.
5. Australia’s mining sector
– Weakened in 2012 considerably on the back of slowing growth in China and much softer commodity prices particularly Iron Ore which had a dramatic and highly publicised fall in price but ultimately recovered. AS a result of the weaker prices and the uncertainty surrounding China mining investment was deferred and aborted. China’s growth has since stabilised.
What can we expect in 2013?
With reducing risks in Europe, a recovering US and a gradual increase in global economic growth it is likely that growth assets such as shares are going to continue to perform well.
Low and maybe reducing interest rates in Australia support this with the hunt for yield likely to remain a strong theme among investors. Term deposit rates are to remain at such low levels as to force those searching for income to invest elsewhere.
We may see term deposit rates fall to below 4% per annum
With low interest rates and a steady dollar housing and tourism sectors are likely to perform relatively well as should the overall share market. If the rate cuts have the desired effect we may even see the dollar fall a little which will again benefit housing and tourism sectors and the broader market.
Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of Sentry Wealth Management Pty Ltd (AFSL 227 748) ABN 77 103 642 888. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.