Australian shares reach highest point in 10 years
Australian shares make up almost one quarter of the Growth (Cbus MySuper) option’s asset allocation, and a smaller proportion of the Conservative Growth option.
The Australian share market, as measured by the S&P / ASX 300 price Index, reached a 10-year high in July 2018, although is below its all-time peak of 6845 in October 2007. While this might suggest the Australian share market’s performance has been modest, when dividend income is included, total returns (from dividend and share price growth) over the past twenty-year period have been much stronger – see orange line in the chart below.
Over the last 20 years, there were three distinct periods that have impacted the Australian share market.
The first period coincided with the economic boom in China between the years 2003 to 2008. The boom was a major driver of the Australian share market as it directly benefitted many of the listed Australian resources companies as well as indirectly boosting the domestic Australian economy through income tax cuts and strong wages growth.
The China boom phase was followed by the Global Financial Crisis (GFC) in 2008/2009, with the Australian share market falling by around 50%. The third phase followed the GFC. Initially strong stimulus measures, particularly in China, boosted growth and the share market. The key driver of growth changed after a period reflecting interest rates in Australia dropping to record lows, which in turn led to a boom in the housing market. This drove strong share market performance underpinned by Australian banking stocks. Household debt levels rose quickly over this period and are now at record levels.
Thirdly, while the performance of Australian shares has been generally favourable since the GFC, the risks to the outlook have increased. That said, we expect supportive global growth in 2018 and 2019. A key risk to the investment environment is US inflation rising more than anticipated, resulting in the US Federal Reserve raising interest rates more than expected. Another important risk is a material escalation in trade tensions between the US and China. While our expectations are reasonably favourable, Cbus continues to monitor risks closely.
How does this impact my investment?
We note that returns in recent years from Australian shares have been very strong and we expect that returns will be more moderate going forward.
The Growth Option’s exposure to growth assets (such as shares) has been reduced over recent years reflecting changes in the investment outlook.
Cbus reviews the allocation to Australian shares, and the other asset classes, at least monthly across all diversified investment options.
For asset classes like Australian and international shares, we expect periods of negative returns from time to time. However, markets often recover quite strongly after these periods of volatility. Our investment decisions are not based on short-term considerations and they generally reflect the medium to long term outlook for asset classes. The Growth (Cbus MySuper) option is well diversified across a range of asset classes including shares, property, infrastructure, fixed interest and cash.
This information is about Cbus. It doesn’t take into account your specific needs, so you should look at your own financial position, objectives and requirements before making any financial decisions.
Assistance is available through the Cbus Advice Services on 1300 361 784.
Read the relevant Cbus Product Disclosure Statement to decide whether Cbus is right for you.
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