Winds Of Change

THE BIG QUESTIONS FOR 2018

- Annette Beacher

We see 2018 as a year of transition, away from the prolonged low-interest-rate environment that has only managed to support a debt-fuelled, overinflated housing sector and towards an environment of steady, broad-based growth. It has been quite some time since a changing interest rate cycle has come into play for guiding investment choices.

We see global growth being more supportive for Australia than at any time since the GFC. The US and Europe are expanding at an above-trend pace, the UK so far has avoided the worst of the Brexit-related fears of a protracted slowdown, and China has been expanding at a steady 6%-7% pace since 2014, in turn underpinning the strongest regional trade flows we’ve seen in years. All this adds up to a favourable environment for global equity investments, which in turn is a strong safety net for Australia’s outlook.

The conservative investor will be relieved to know that interest rates are expected to rise, albeit gradually, over 2018. After earning a 2.4% return in the past two years (Bloomberg AusBond Composite – that is, a conservative domestic bond fund) we look for returns to be at least 2% higher over 2018 and into 2019, boosting the purchasing power of savers and retirees after years of barely keeping up with inflation.