August Market Update

Written by Ronald Pratap

on August 21, 2019

 

 

A slowdown in manufacturing and continuing weakness in many emerging economies, as well as in Germany, has startled financial markets as we can see by the drop off in the first half of August. An escalation of the economic “cold war” between the US and China has threatened to derail global growth and affects markets globally. President Trump’s imposition and subsequent delay of additional rounds of tariffs has also been met with increasing nervousness.

More than 20%, or US$11 trillion worth, of bonds on issue worldwide are currently trading at negative yields. While we have not yet reached that point in Australia, interest rates are at record lows after the RBA’s recent back-to- back cuts. Indeed, when it comes to rates, we are in uncharted territory, with the view currently prevailing that rates are unlikely to return to normalised levels any time soon. Rather, we appear to be firmly in a ‘lower for longer’ environment. This presents a significant challenge for investors– and not just for those seeking income as we have seen all asset classes take a hit over the last 12 months. We continue to emphasis a well diversified portfolio of holdings of assets across different sectors and industries for those long term investors.

While the environment is challenging, the positive news is that there are still investment options available that can provide both income and growth, as well as investments that have the potential to outperform traditional benchmarks without the drain of high fees.

The table below shows investor placing $10,000 into the market in 1988 and the affects over time that several asset classes will have on the funds. We can see that over time growth assets continue to be the best performer with more volatility in short term periods,however these tend to be more smoother over time. We focus on building clients portfolios with a weighting across several asset classes depending on their risk profile.

With key economies losing momentum, the market panicked when the US 10 year treasury yield briefly moved below that of its 2 year equivalent. This was reported in the media as an “inverted yield curve” . This has made headlines because it has in previous cases come before a recession. At present, however, the yield curve is not inverted across these maturities.

At the time of writing this update, the market seems to have bounced back and regained some of the losses from the big drop off last week. This does not mean that things are over as there is much happening in global markets.

While we do not ignore the fact that risks to important global economies are mounting, it is worth emphasising that a recession is not currently the most likely outcome and that many data points are continuing to hold up well. The global consumer, and the US consumer in particular, is continuing to spend. The cost of borrowing is stable or decreasing. Investment is fixed assets remains solid in many regions and labour markets are continuing to create jobs along with gradual wage growth. In Australia, lower interest rates, the implementation of tax cuts, looser macro prudential settings and a rising infrastructure spend should benefit growth in the latter part of this year.

The sell-off in early August came soon after markets reached record highs. Given that there are ordinarily three or four sell-offs over the course of a year, this one is not altogether unexpected and shouldn’t be any more alarming. Forging a new high (or low) typically tests the market psyche and large swings often follow.

Problems usually arise when markets continue to fall and fear starts to grip investors – such as during the December quarter last year. But, as we noted in a previous communication in that period “the October sell-off could prove to be a buying opportunity.” Indeed, it is quite possible that the bumpy ride in August will also be well navigated by the broader market.
Why might that be the case?

In summary, one would expect that more volatility is on the way. There looks to be no short term resolution to the trade war and it looks unlikely as the US approaches another presidential-election year. Brexit, if and when it finally occurs, will create headlines, particularly if no deal can be reached with Europe. And Hong Kong, an important global financial centre, is being crippled by anti-China, pro-freedom protests. Signs of a military build-up by the Chinese near the Hong Kong border will also unsettle investors. Some see accommodative policy by central banks as encouraging a misapplication of capital, meaning that markets have further to fall should something go seriously awry.
On balance, we feel that equity investors are being rewarded for risk and that low interest rates (or discount rates) are helping justify elevated share markets. Holding a well-diversified portfolio can help buttress against market gyrations and make buying the dip a little less nerve-wracking. For investors with a long-term horizon, patience is a virtue as markets have shown a tendency to rise over the long-term.

As always please contact us if you would like to review your portfolio or have a discussion about the asset allocation of your funds.

 

 

 

Information contained within this update has been prepared as general advice only as it does not take into account any person’s investment objectives, financial situation or particular needs. The update is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied upon as such. Should you wish to obtain tailored advice, we recommend you speak with an Authorised professional or Financial Adviser.

Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

Latest Posts

How life insurance can help when buying a home

November 9, 2020

The long-term impacts of COVID-19 on the Australian economy

November 9, 2020

How to Make Your Savings Work for You in a Low-Rate Climate

September 14, 2020
What Clients Are Saying About Our Financial Planning Services
Ron and the team from RP Wealth Management help my wife and I review our super and insurance and where he felt we could improve he proved his recommendation and was honest about part that where good to leave. Thank you
Daniel Simone
Daniel Simone
21:23 12 Nov 20
Ron is a very knowledgeable and reliable advisor but more importantly caring for his clients. I have personally used his services and recommended many of my family and friends!! Thank you for all your MARVELLOUS help;)
Football Star Academy
Football Star Academy
11:52 10 Jun 20
Ronald is very informative and professional and I have no hesitation to recommend him highly.
Chris Bakalian
Chris Bakalian
04:30 02 Jun 20
Ron and the team are extremely professional and knowledgeable, complimented by exceptional customer service.
Michael Ferella
Michael Ferella
04:11 27 May 20
Ron was able assist my husband with all the necessary information from start to finish with his plan. We found Ron extremely easy to get along with and communication was outstanding. As a family we can high recommend Ron to all.
Chloe Farnell
Chloe Farnell
04:01 02 Apr 20
Ron has been amazing for me and truly took the time to understand what my real needs and wants were to custom tailor not only my super and retirement plans but the options to diverse my investing to meet short term goals.He’s very relatable and down to earth so the whole process is enjoyable. Looking forward to working together in the many years ahead.
Shannon McDonnell
Shannon McDonnell
00:29 20 Feb 20
Ron is honest, intelligent, trustworthy, and hardworking adviser. Always goes above and beyond to ensure he gets the best outcome for his clients. Highly recommended!
Petra Novakova
Petra Novakova
12:25 06 Feb 20
Ron is amazing!! He is so easy to talk to and explains things so you can understand everything. If we had any questions about anything he was always there to answer our questions. Definitely recommend him.
Jessica Tree
Jessica Tree
09:05 11 Oct 19
Ronald is a great person to deal with...explains everything very clearly and goes through all your options...looks out only for his client not any personal gain..I feel confidence that my wealth management and finances are handled correctly with his guidance
Jordan Mijalkov
Jordan Mijalkov
07:57 24 Sep 19
Insurance within super and the whole superannuation mindfield is made simple when you enage with people who know their stuff.I highly recommend Ronald, he is flexible, committed and focussed on helping you to understand and have confidence in this arena.
Sandra Bartlett
Sandra Bartlett
04:50 29 May 19
Ron and his team have a wealth of knowledge in the industry and have referred relatives and clients, whom have been satisfied with his service to ensure that they are adequately protected.
Daniel Caldwell
Daniel Caldwell
22:24 07 May 19
I have referred many clients and used Ronald's financial planning services personally and couldn't recommend him highly enough. Very professional and knowledgeable in the financial services industry. I would not hesitate for a second to recommend Ronald’s services to anybody within my network.
Bradley Durrant
Bradley Durrant
03:22 03 May 19
Have had a great experience, have felt all meetings and communication to be very informative and honest in areas I was uncertain about.
Josh Saumatua
Josh Saumatua
08:34 22 Jul 18
Very knowledgeable and informative. Happy to answer all questions and always responds to my calls/emails. Takes control which makes for a simple and seamless process.
D Saumatua
D Saumatua
12:24 20 Jul 18
Ronald is so easy to deal with and helps you every step of the way to make it so efficient and quick to fill out paperwok. He is very professional and makes it all happen so quickly. He always picks up the call or gets back to you, What else can you ask for. Great guy and service
Mibu Medispa
Mibu Medispa
08:08 16 Jul 18
Very professional and consistent in his work with truckloads of knowledge in his industry. He helped me with my life insurance and did a fantastic job from start to finish. Walking me through the entire process and always following me up. I would not hesitate for a second to recommend Ronald’s services to anyone. Great guy. Great professional. Great service.
Caterina Romeo
Caterina Romeo
01:07 18 Apr 18
I met Ronald in a professional capacity, and his willingness to share his insights and his enthusiasm for the work that he does clearly shines through. I'd highly recommend connecting with him if you're looking for an adviser who holds great integrity in the way they support their clients.
Shannyn Merlo
Shannyn Merlo
08:32 23 Feb 18
Great service and very helpful
Dragan Jelic
Dragan Jelic
01:25 27 Oct 17
Ronald is great communicator and very knowledgable with his financial advise. He helped my wife and I structure a better protection plan covering life insurance, trauma cover and income protection. Easy to discuss any questions we had and generally very helpful. I highly recommend talking with Ron!
James Newman
James Newman
03:38 25 Sep 17
Ronald is a really easy going guy to deal with. He will go above and beyond to ensure he finds out all the details and gets you the best cover for your circumstances. Ronald made the process of getting Trauma Insurance and Life Insurance very easy - much easier than I thought and it was surprisingly cheaper than I thought it would be too. I really recommend you see RP Wealth Management.
Hayley Pieplenbosch
Hayley Pieplenbosch
05:55 28 Jul 17
I needed general financial advice and he delivered with the lingo I easily understood. Friendly guy and always approachable. Would highly recommend him to anyone!
Gorgi Serovski
Gorgi Serovski
13:09 22 May 17
A hard working and diligent professional, Ronald certainly places his clients needs first in all situations. Keep up the good work!
Shaun Pereira
Shaun Pereira
00:14 19 May 17
My Wife and I have known Ron for many years. He has always put our needs first and has always given 110% with giving us the best advice,solutions and above all exceptional results with our super and investments! Highly recommend Ron to anyone in need of financial guidance."I found Ronald to be very knowledgeable about all aspect of finance and being very helpful in overseeing my finances and making sure that I will live comfortably for quite a few years to come. his friendly nature comes from deep down and his clients are treated like family. I will not be afraid of recommending Ronald to all my relatives and friends."Thanks mate. Really appreciate it.
Deniz Sertlioglu
Deniz Sertlioglu
03:09 03 Jan 17
We've Been Featured In
Industry Recognition

TAL Rising Star Financial Planning finalist 2016

RI Advice Excellence award Finalist 2014

Subscribe To The RP Wealth Management Newsletter
You’ll receive the latest information about our business, services, new offerings and our marketing communications.
Book Your Consultation
Are you ready to secure your financial future today?
Get in touch with us to develop your strategic plan and achieve peace of mind.

© 2020 RP Wealth Management | Privacy Policy