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Farewell Fiscal 2019, Hello Fiscal 2020

02072019_Fiscal 2019

Farewell Fiscal 2019, Hello Fiscal 2020

As fiscal 2019 has drawn to a close, let’s take a look at the year that was. In sporting parlance, it was definitely “a game of two halves.” Virtually all major indexes declined in the December 2018 half-year, however this proved temporary and the recovery in the June 2019 half-year was quite extraordinary.

To illustrate this, the following three markets are example of movements, split between the December 2018 half-year and the June 2019 half-year:

31-Dec
2018
30-Jun
2019
Nasdaq -11.70% +20.07%
DAX -14.20% +17.40%
Shanghai Composite -12.4% +19.40%

A big influence on markets was the continuing decline in interest rates. After hitting 3.24 per cent in October 2018, US ten-year treasury bonds rallied to 2.0 per cent at June year-end. Factors like the Morgan Stanley US business confidence indicator plunging to the lowest level since December 2008 means all eyes are on the US/ China trade tensions.

The prize for the best performing market for the year goes to New Zealand (+17.4%) and this was followed by India (+11.2%), the S&P 500 (+8.2%) and the Nasdaq (+6.6%).

Excluding dividends, the Australian All Ordinaries Index appreciated by 6.5 per cent over fiscal 2019 to 6,700, only 150 points from the all-time high of 6,850 points recorded in November 2007.  The Nikkei 225, the FTSE 100 and the Hang Seng all recorded a capital loss for the fiscal year.

Global negative yielding debt is at a record high of US$12.5 trillion, and “risk-taking” is on the increase with 80 per cent of US IPOs coming to the market which are currently “earnings-free.”

In Australia, ten-year government bonds yield rallied from 2.63% to 1.32%, and together with the cash rate being cut from 1.5% to 1.25% households have been strongly incentivised to go up the “risk curve” by switching from being savers to borrowers.

While the easy monetary policy pursued by the Reserve Bank of Australia (RBA) assisted a boom in house prices (and “zombie companies”), it has been harmful to “good savers.” The slump in the return on short-term deposits and bonds – the low risk component of the portfolio – has meant many older Australians are being forced to either reduce their spending or to run down their assets.

On the commodities front, iron-ore and gold deserve special mention, closing at US$109.20/tonne (+68.0%) and US$1,409.60 (+12.5%), respectively.

The Australian Dollar was weaker against all major currencies, as the strong indications of synchronised world growth so prevalent in 2017 seemed to fade as we progressed into fiscal 2019.

30-Jun 2018 31-Dec
2018
30-Jun
2019
6 months to 30-Jun-19 12 months to 30-Jun-19
      % Change % Change
Indicies
All Ordinaries 6290 5709 6699.2 17.3% 6.5%
S&P 500 2718.4 2506.9 2941.8 17.3% 8.2%
Nasdaq 7510.3 6635.3 8006.2 20.7% 6.6%
Nikkei 225 22304.5 20014.8 21275.9 6.3% -4.6%
FTSE 100 7636.9 6728.1 7425.6 10.4% -2.8%
Dax 30 12306.0 10559.0 12398.8 17.4% 0.8%
CAC 40 5323.5 4730.7 5539.0 17.1% 4.0%
Shanghai Composite 2848.3 2493.9 2978.9 19.4% 4.6%
Hang Seng 28955.1 25845.7 28542.6 10.4% -1.4%
Sensex (India) 35423.5 36068.3 39394.6 9.2% 11.2%
NZ50 Gross 8943.0 8811.3 10501.1 19.2% 17.4%
Bonds
US 10 Year Bonds 2.86% 2.68% 2.01% -0.67% -0.85%
German 10 Year Bunds 0.30% 0.24% -0.33% -0.57% -0.63%
UK 10 Year Gilts 1.28% 1.28% 0.83% -0.45% -0.45%
Japan 10 Year Bonds 0.02% 0.00% -0.16% -0.16% -0.18%
Australian 10 Year Bonds 2.63% 2.32% 1.32% -1.00% -1.31%
Australian 11am Call 1.50% 1.50% 1.25% -0.25% -0.25%
Commodities
Gold (US$/oz) 1253.0 1281.3 1409.6 10.0% 12.5%
Oil (US$/bbl) 73.01 45.41 58.47 28.8% -19.9%
Iron-ore (US$/tonne) 65.0 71.3 109.2 53.2% 68.0%
Copper (US$/lb) 2.97 2.63 2.71 3.0% -8.8%
Wheat (US$/bushel) 5.01 5.03 5.47 8.7% 9.2%
Currencies
$US/$A 0.74 0.71 0.70 -1.4% -5.4%
$A/GBP 1.78 1.81 1.82 0.6% 2.2%
$A/EUR 1.58 1.63 1.61 -1.2% 1.9%
Yen/$A 81.87 77.55 75.76 -2.3% -7.5%
INVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. Hi David, thanks for a great article. I’ve noted that over the five years since the Modi government came to power, the Indian market seems to have consistently performed well. Just wondering why the Montgomery Global funds are not seeking to actively pursue undervalued opportunities in the Indian market even though it was the second best performing market last financial year?

    • Hi Chiraya, thanks for your insights. Our global team are trying to acquire excellent businesses at attractive prices, with a medium to long term view. Modi seems to be doing a good job in India, a market I am interested in, and visited a number of times.

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