Investment markets strength is understood by technicians in the industry, to reflect the ‘depth’ and the ‘liquidity’ of the markets: those features are referenced in this article, but of greater interest to most investors is how market prices are performing.
Geographically, the markets to which most of the funds Australians commit as investors, are located in Australia; and there is little dispute that the performance of those markets has been substantial during the period since the ‘bottom point’ of the GFC (although participants in the Unlisted Property space may have wanted to challenge that assertion for at least the first four years of ‘the recovery’), since March 2009.
As financial planners we tend to refer to ‘markets’ as being the sharemarket and other markets that deal with financial instruments that are used to develop investment strategies for our clients: these include – Cash; government and corporate Bonds and other Fixed Interest paper; shares in listed public companies; property; infrastructure; commodities; and variants of those investment asset classes (sometimes referred to as derivatives, alternatives etc).
These markets are able to be accessed directly and/ or through managed funds (to take advantage of scale investing – and diversification of portfolios).
Investment markets strength and economic considerations
The Reserve Bank of Australia (the RBA) – and the International Monetary Fund (the IMF) – regularly forecast growth in Australia’s annual Gross Domestic Product (GDP) in the range 3% to 4% per annum; and there is reason to believe that our markets will continue their strong growth for some years to come: albeit that not all segments of the economy (industries and sectors) will necessarily experience growth simultaneously.
At the time of our August 2020 refresh of this commentary (from 2011), the global COVID-19 pandemic was having significant economic impact around the world – and as we update the commentary in June 2022) global economies are experiencing a new set of challenges arising from the pandemic – including inflation (because of the surplus cash available to households after a couple of years of ‘lockdown’ austerity), supply chain interruptions – as well of course, as the Russian atrocity in Ukraine, albeit unrelated to the pandemic. In spite of these headwinds, investment performances over the period from March 2020 to at least January 2022 had been impressive, before rising interest rates from the Central Banks and the inflation effects brought on a Bear market by mid-June 2022. Whilst the Bear market has been declared, the market valuations are still higher than pre-pandemic – and certainly pre-GFC times.
At the time of writing (this is an update to the original December 2010 article) investment markets strength in shares, property and some bonds since the beginning of the post-GFC recovery has continued. Many of the markets have fully recovered the losses from the GFC; some, like the Australian Sharemarket, have only recovered to trend from the pre-GFC trajectory; whilst yet others are progressing on ‘the new normal’ path – and there are a number of forecasts indicating that annual growth for diversified ‘balanced’ portfolios could continue at around 10% for the near term. As at June 2022, one will need to read this as an average return over a three-year period we suspect.
At Continuum Financial Planners Pty Ltd, we are quietly confident that this could be be achieved. At time of the May 2014 update this had progressed well, but at more than six years from the original peak (in December 2007), was about the same time as the 1987 share market crash took to retrace its losses! In the current situation however, we anticipate that there could be a further three years (even to late-2017) before all markets have recovered. Whilst this will be the longest recovery period in recorded modern financial markets history, it is a story of strength in the markets and progress in the underlying economies.
If you entered the local sharemarket as a new investor in the months around March 2009 you will have seen the growth of the ASX All Ords from around 3400 to a recent 5500 – a compound average return rate of over 10% per annum (not counting dividend imputation credits). At the time of the June 2022 update, this index is fluctuating around the 6900 level.
Are the markets running too hot? We don’t believe they are in a general sense; although some sectors; and some geographic markets have displayed ‘bubble’ tendencies in the ‘recent’ past.
Will the markets keep pushing a straight line upwards? We don’t believe they will: each new ‘high’ as the recovery progresses is likely to meet with some resistance as investors take the opportunity to take some profits and rebalance their portfolios.
If the markets are going to ‘correct’, how big a correction will happen – and when? We believe that corrections will happen throughout the recovery period, occasioned by unexpected news (company, geopolitical, extreme weather events etc) – but we anticipate that those corrections to be only between 5% and 8% in most cases. We believe that this is a ‘healthy’ process and one that all markets go through from time to time.
Are the investment markets strong? We believe they are.
Experienced financial advisers at Continuum Financial Planners Pty Ltd maintain a keen awareness of trends in markets and the activities of the fund managers we entrust with client funds. In providing our services to our clients our team works to the premise that – ‘we listen, we understand; and we have solutions’ and we care about the outcomes of the ‘personalised, professional wealth management advice’ we deliver. To participate in the growth of investment assets over the next few years – and to ensure that participation is strategically appropriate to relevant individual circumstances – please call our office (07-34213456), or use our website Contact Us facility, to arrange a meeting with one of our advisers to explore our full service offering targeting financial independence for you and your family.
(This article was published in February 2011 and has been occasionally updated and/ or refreshed, most recently in June 2022.)
