The Reserve Bank of Australia (RBA) cut the official interest rate over the past quarter to a historical low of 2.0%. If economic and financial conditions deteriorate in the coming months the RBA may make further cuts to stimulate economic growth, although market expectations are that rates will remain unchanged for sometime.
Australian and international bonds
Australian and international bond yields have risen in recent months primarily due to the market unrealistically pushing yields down to levels that did not adequately reflect the risks. The rising yields have resulted in bond values falling, as bond yields and price move in opposite directions.
The Australian share market has had a good run and now seems to be taking a breather. With expectations that economic growth will remain fairly subdued into 2016, it is unlikely that company earning growth will be strong for sometime. Therefore whilst the recent falls in the market have made valuations more attractive, investors will continue to need to be selective.
In recent weeks, developed equity markets have become more volatile in response to the Greek debt crisis and valuations in some markets that already appeared stretched (particularly in the US market). However we remain confident that opportunities remain, particularly in non-US markets including Europe and Japan, where valuations are not as extended.
Furthermore for Australian investors the prospect of further depreciation in the Australian dollar means unhedged international equities are likely to continue to see a boost to returns.
In the past few weeks, we have witness a dramatic fall in one class of shares in the Chinese share market. This class of shares is largely open to, and traded by, Chinese retail investors, and therefore has little direct impact on Australian investors. We continue to find selective opportunities exist in these markets, especially given valuations remain cheap when compared to share markets in the developed world.
Listed infrastructure has followed many equity markets down in recent months but has delivered solid returns over the past year. The fundamentals of this sector-solid predictable companies with cash generative business models make it a preferred investment option for those investors with a longer term investment horizon.
This sector has been one of the strongest performers over the last year. In more recent months performance has slipped a little. The sector remains underpinned by solid asset backing.