The start of each year ushers in a new series of opportunities, challenges and a continuation of past themes.

Calendar year 2017 will be no exception.

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The US election has come and gone, and despite markets getting the wobbles in the lead up to the election it has certainly been ‘risk on’ since the result. Are we experiencing a ‘Santa Claus rally’, or is this the start of something more structural?

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As the year 2016 draws to a close and the pace of life slows just a little, it is probably as good a time as any to reflect on some of the key market and non-market events that shaped the year.

Well 2016 was an interesting year, but perhaps every year is interesting!

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In the last few weeks as we have had discussions with clients about investment markets and their portfolios, it has been difficult not to allow the conversion to drift into areas that are concerning investors, which has been highlighted recently in the media. After all, bad news sells and good news is, well nice!

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Since the global financial crisis 8 years ago we have been in a world where markets are heavily influenced by central bank policy. We have witnessed key central banks around the global undertake aggressive ‘unconventional monetary policy’, notably quantitative easing and rate cuts, whereby some countries are currently in negative rates territory. It is questionable whether this policy has stimulated real economic growth with measures such as the velocity of money (number of time a dollar is spent to buy goods and services) falling off a cliff and economic data being mixed as some countries grapple with deflation, while others seek to transition their economies away from exports to domestic consumption. 

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As we have flagged in previous editions of the IOR, our expectation has been that markets will be characterised by increasing levels of volatility and subdued growth. This has been the case when we reflect on 2016 so far, which started off with a bang with markets falling on the back of uncertainty surrounding China’s economic prospects and slumping commodities markets. More recently, markets have rebounded after shrugging off early concerns over Brexit and as headwinds in emerging markets faded as US rates hikes have looked less and less likely for this year.

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In a recent press release the Treasurer, Scott Morrison, released a number of changes to the Government’s three key federal budget proposals.

For some, perhaps the most significant changes to the earlier proposals were that the Government will now NOT be proceeding with the proposed $500,000 lifetime non-concessional contribution (NCC) limit.

Instead they have proposed reducing the existing Non-Concessional Contribution (NCC) limits from 1 July 2017. 

If legislated, this proposal will impact many accumulators and very early pre-retirees.

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In the past couple of days we have witnessed the power that global Federal Reserves have over our markets. In particular, the US Federal Reserve’s decision to increase (or hold) interest rates has become the subject of intense market speculation and volatility, which has impacted share markets, bond markets and currency, globally. 

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Having recently returned from a trip to Europe, I was able to witness firsthand some of the impacts that a slowing of global growth and negative interest rates (to name two) can have on investment markets and an economy in general.

When I read that the Future Fund is in negotiations with the Federal Government to lower and adjust the longer term investment return targets of this $120 billion investment vehicle, the tag line of ‘lower for longer’ starts to repeat itself.

Additionally, there have also been many non-financial events around the world that will challenge us, maybe not all directly financial, but that will test us none the same.

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Much of the recent market news has been dominated by ‘Brexit’ and what it all means. Post the UK’s decision to leave the EU equity markets and the Pound Sterling pulled back aggressively as markets had largely priced in that the ‘remain’ vote would win, conversely ‘safe havens’ like gold and defensive sectors such as utilities rallied. Since that time markets have recovered (although the Pound remains at multi-decade lows), however it is still unclear what it all means for the UK and more broadly the EU.

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