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January Economic & Market Summary

Wednesday, February 10, 2016



At its first meeting of 2016 the RBA again elected to sit pat, leaving official cash rates at 2%. Despite this, some Australian banks are quietly nudging interest rates up on some types of loans. NAB, for example, was reported as raising rates by around 0.25% on some loans in February. The big Australian banks are under pressure on two fronts: the regulator is cracking down on certain types of lending to property investors; and is requiring banks to reserve more capital generally as international standards for banks are tightened. The banks, by raising rates, are trying to maintain their profitability at the expense of their clients. We believe that the RBA (contrary to market expectations) is likely to cut interest rates further in 2016; but that this will not all be passed onto borrowers.


Bonds experienced some weakness in the run up to December as interest rates were increased in the US. In January however bonds recovered ground with a decent monthly return of around 1%. We think that a shift in market perceptions away from concerns about interest rate increases to concerns about share market volatility should see bonds resume their natural role as safe harbours, and as such we remain positive about prospects for this sector over the next few months.

Australian Equities

The Australian equity market experienced a poor month in January. Over a full 12 months Australian shares delivered modest negative returns to investors. The slowdown in China, which is Australia’s largest trading partner, continues to unsettle investors. We believe that China will successfully transition its economy, which will present both opportunities and problems for Australia. Tourism has a bright future, iron ore less so.

International Shares

International shares had a difficult month in January but posted modestly positive returns over the prior 12 months, outperforming Australian shares. Generally, shares in the big developed markets outperformed shares listed in emerging economies. Emerging market (EM) shares experienced negative returns over the prior 12 months. This is despite much more attractive valuations in EM shares than are available in developed market equities. Listed infrastructure stocks also fell in later 2015 as fears about interest rate increases in the US adversely impacted on interest rate sensitive stocks. They experienced some recovery in January which is continuing into early February.

To discuss this further or to speak with a Matrium Financial Services Adviser, contact us today on 02 8861 1840.

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