Investment commentary February 2017
What’s been the impact of housing on the economy and what’s the outlook for 2017?
Falling interest rates from 2011 fuelled a boom in housing construction in Australia which helped to offset the decline in economic growth from the mining sector. New building approvals reached a peak in the middle of last year and have since declined around 18%.
It typically takes around six months on average to complete a new house and nine months for an apartment, so the peak of new housing supply is expected to come to the market over the first half of 2017. The impact this has on prices and employment will be one of the key issues to watch this year.
How have markets started the year?
Shares got off to a weak start in January, with the ASX 200 down 0.8%. The resources sector was a notable exception though, rising 5.2% in a month where commodity prices were up strongly. International shares were up on average, good performance in the US and Asia offsetting weaker returns in Europe. Bond yields rose in Europe but were largely unchanged in the US and here in Australia.
What do movements in the Australian dollar mean for us?
The Australian dollar rose 4.8% against the US dollar, 3% against the British Pound and 2.3% against the Euro. If you held some of your international investments unhedged then this would have reduced returns. Historically though, maintaining some exposure to foreign currency in your portfolio has proven to be a good diversifier.