It’s pretty clear that US and global issues will dominate this year, but separately, there’s a big transition going on in Australia too.
Between 2011 and 2016 our commodity prices fell 60% and mining investment fell from 9% of GDP to 3% now. Offsetting this to some extent have been lower interest rates, which produced a housing boom, and a 30% depreciation of the dollar.
That story is now over. Commodity prices are rising, mining investment has stopped falling, the housing boom is nearing an end (although it got a second wind in the second half of last year) and economic growth is being supported by services – tourism and education in particular.
This week we saw mixed signs in the labour market: three consecutive months of rising full time jobs, but the total number of new jobs in 2016 was just 100,000 and unemployment went up and remains high.
After the negative September quarter it’s already clear that the December quarter has seen a rebound – so no recession.
Looking through the quarterly ups and downs, growth is gradually picking up: 2.4% in 2016, probably 2.8-3% in 2017 and above 3% in 2018 (as long as something drastic doesn’t happen in the US, like a trade war and global depression, which unfortunately can’t be ruled out).
What does that mean for investing? Well, it probably means last year’s 11.8% total return from the ASX 200 is unlikely to be repeated, and nor is the 40% gain by the resources index in 2016. The median super fund return was 7.7% in 2016, which is par.
This year we’re likely to see volatility and no free ride from the market, that is from ETFs. Investors will have to work for the returns and stay on their toes. It is, in short, a year when you’ll need The Constant Investor more than ever!