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Economic and investment outlook
> Okay but uneven global growth – 2013: 3.0%, 2014: 3.5%, 2015: 3.5%
> Australian growth to pick up on a more sustainable basis over the year ahead
> Interest rates to remain low, with the RBA cutting rates again
> The $A is headed towards $US0.75, with the risk of an undershoot
> Bonds and term deposits offer low returns
> Cyclical bull market in shares is likely to continue, but expect more volatility
> Key risks: the first Fed rate hike; problems with energy producers; Greece;
China
Source: AMP Capital
// 3
// 4
4
2014 saw another year of solid returns
Source: Thomson Reuters, AMP Capital
0
5
10
15
20
25
30
35
40
45
50
Austequities
Int'l equities($A)
Int'l equities(local)
Aust bonds Globalbonds
Aust listedproperty
Global listedproperty
Directproperty
Cash
Percent return *
* pre fees and taxes.
2013
2014
6%
15%
10% 10% 10%
27% 28%
2.7%
9%
// 5
Global business conditions point to okay global growth, but no boom
Source: Bloomberg, AMP Capital
Global Manufacturing PMI averageManufacturing PMI’s
-1%
0%
1%
2%
3%
4%
5%
6%
35
40
45
50
55
60
05 06 07 08 09 10 11 12 13 14
Global Manufacturing PMI (LHS)
World GDP growth (RHS)
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
US PMI (LHS)
Japan PMI (LHS)
European PMI(LHS)
China PMI (RHS)
India PMI (RHS)
Brazil PMI (RHS)
// 6
Slide in global oil prices: bad for energy producers, good for global growth, inflation
Source: Bloomberg, AMP Capital
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Based on average family use of 35 litres of petrol per week
Weekly petrol bill for a typical Australian household
0
20
40
60
80
100
120
140
160
70 75 80 85 90 95 00 05 10 15
World oil prices on the slide...again
West Texas Intermediate
$US a barrel
-78%
-74%-74%
US economic growth is good
Source: Thomson Reuters, AMP Capital
// 7
-5
-3
-1
1
3
5
7
30
40
50
60
70
00 02 04 06 08 10 12 14
Manufacturing conditions PMI (LHS)
US GDP growth (RHS)
Annual % change
The Eurozone recovery has faltered – but the ECB is providing more support
Source: Bloomberg, AMP Capital
// 9
30
35
40
45
50
55
60
65
-6
-4
-2
0
2
4
6
00 02 04 06 08 10 12 14
Manufacturing conditions PMI (RHS)
European GDP growth (LHS)
Annual % change
The Japanese economy should bounce back, helped by even more aggressive BoJ stimulus
Source: Bloomberg, AMP Capital
// 10
30
35
40
45
50
55
60
65
-7
-5
-3
-1
1
3
5
7
04 06 08 10 12 14
Annual % change
Manufacturing conditions PMI (RHS)
Japan GDP growth (LHS)
Chinese data is running “hot and cold”, but consistent with growth “around 7.5%”. The main risk is the property downturn
Source: Thomson Reuters, AMP Capital
// 11
38
42
46
50
54
58
62
66
5
6
7
8
9
10
11
12
13
14
05 06 07 08 09 10 11 12 13 14
Chinese real GDP growth (LHS)
Chinese PMI manufacturing
conditions indexes,
smoothed (RHS)
Annual % change
Chinese growth down from last decade
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-6
-4
-2
0
2
4
6
8
10
12
14
05 06 07 08 09 10 11 12 13 14
Property price falls sharper than 2008 and 2011
new data
Monthly % [RHS]
Annual % change [LHS]
70 city property prices
Interest rates likely to remain low, with another RBA rate cut likely and the Fed unlikely to start tightening till mid year
Source: Thomson Reuters, AMP Capital
// 12
0
1
2
3
4
5
6
7
8
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Australia
Europe
Japan
US
Interest Rates %
// 13
Fed monetary tightening is not always bad for shares – US shares before and after first Fed rate hikes, %
Hike -6 mths -3mths +3mths +6mths +12mths +24mths*
Oct 80 19.9 4.8 1.6 4.2 -4.4 2.4
Mar 84 -4.1 -3.5 -3.8 4.3 13.5 22.5
Nov 86 0.8 -1.5 14.0 16.4 -7.6 4.8
Mar 88 -19.6 4.8 5.6 5.0 13.9 14.6
Feb 94 7.5 2.9 -6.4 -4.9 -2.3 14.9
Mar 97 10.2 2.2 16.9 25.1 45.5 30.3
Jun 99 11.7 6.7 -6.6 7.0 6.0 -5.6
June 04 2.6 1.3 -2.3 6.2 4.4 5.5
Average 3.6 2.2 2.4 7.9 8.6 11.2
* % pa
Source: Thomson Reuters, AMP Capital
// 14
Source: Thomson Financial, AMP Capital
The Australian economy – mining investment slowing but there are signs of life elsewhere in the economy
Mining investment looks to have peaked
…which should help boost retail sales… …and then eventually non-mining investment
But dwelling construction is looking up…
0
1
2
3
4
5
6
7
8
9
10
49/50 59/60 69/70 79/80 89/90 99/00 09/10
Non -Mining investment as % GDP
Forecast
0
1
2
3
4
5
6
7
8
49/50 59/60 69/70 79/80 89/90 99/00 09/10
Mining investment as % GDP
Forecast
8
10
12
14
16
18
20
90 92 94 96 98 00 02 04 06 08 10 12 14
(dwelling approvals, monthly '000s)
-5%
0%
5%
10%
15%
90 92 94 96 98 00 02 04 06 08 10 12 14
Retail Sales % yoy
Share markets are generally cheapShare market valuation indicators
Source: Thomson Reuters, AMP Capital
// 15
-4
-3
-2
-1
0
1
2
3
489 91 93 95 97 99 01 03 05 07 09 11 13
Australia
Expensive
Cheap
-4
-3
-2
-1
0
1
2
3
491 93 95 97 99 01 03 05 07 09 11 13
Europe
Expensive
Cheap
-4
-3
-2
-1
0
1
2
3
495 97 99 01 03 05 07 09 11 13
USA
Expensive
Cheap
-4
-3
-2
-1
0
1
2
3
489 91 93 95 97 99 01 03 05 07 09 11 13
Japan
Expensive
Cheap
US shares are at record highs, but underpinned by record profits – much more than just quantitative easing
// 16
Source: Bloomberg, AMP Capital
0
20
40
60
80
100
120
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2200
90 92 94 96 98 00 02 04 06 08 10 12 14
US S&P 500 (LHS)
US earnings per share (RHS)
The challenge for investors – how to find better yield and returns as bank deposit rates stay low
Source: RBA, Bloomberg, AMP Capital
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2
3
4
5
6
7
8
9
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Percent
Average bank 1 yr term deposit rate
Average bank 3 yr term
deposit rate
Official cash rate
// 18
With interest rates & bond yields remaining very low the “search for yield” is likely to go further
Source: Thomson Reuters, AMP Capital
// 18
0
2
4
6
8
10
12
14
16
18
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
10 year bond yield
Avg yield on office, industrial and retail
property
Australian property yields v bond yield
Avg residential property yield
The $A is likely to fall to around $US0.75, with the risk of an undershoot
Source: Bloomberg, AMP Capital
// 19
The $A remains high compared to levels suggested by relative prices
Short positions in the $A are building suggesting the risk of a short term bounce
-100,000
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Net speculative positions in AUD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
$US per $A, at June each year
Purchasing power parity implied level (based on relative consumer prices)
Latest
Page 20 |
“Bull markets are born
on pessimism, grow on
scepticism, mature on
optimism and die of
euphoria”.
John Templeton
// 21
Important note
While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts.
Past performance is not a reliable indicator of future performance.
This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided.
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