Market Update – May 2014

Amidst all the budget noise, it is timely to remind ourselves of wise words written 3000 years ago to remember the age-long importance of diversifying. What was true then remains as true now, as quoted in an investment white paper by Market Vectors this month:

“…invest in seven ventures, or even to eight, for you know not what disaster may happen upon earth

(Ecclesiastes 11:2).

Also worth bearing in mind as we review market performance to the end of April is two other great investment quotes:

“…investing should be like watching paint dry or watching grass grow. If you want excitement….go to Las Vegas.

(Paul Samuelson, US economist and Nobel prizewinner)

“…sell in May and go away, buy again on St Leger’s Day…

Anon {the day is a UK horse race on 2nd Saturday in September}

While we would not advocate actually selling everything in May for longer term investors, it a good reminder of the seasonal pattern shares experience so buying in May is not usually a good time as markets often decline through this period.

Market update 2014-05-1

Source: Thomson Reuters, AMP Capital

Australian shares

Australian shares were flat again in April, but financial year to date returns are still well above average on 18.4%, or around average at 10% for the 12 months to date, only slightly behind international shares before the effect of our currency.

The market for the calendar year to date, up 10% since January, has been helped by improved economic and earnings data. However, good bank results suggest we may have reached peak earnings and earnings multiples, so they have little further upwards place to go, given bad debts now at record lows.Market update 2014-05-2

The recent federal budget is generally considered to be reasonably positive for shares, with less tightening than expected providing some room for increased consumer and business confidence, but the best gains are likely behind us.

With the All Ordinaries level index around the 5450 level the Australian market is at the low end of ‘fair value’ (with expected 10-year returns around 9.7%pa) at that level on a ten-year view.

International shares

International shares also had a flat month again in April after a poor start to the month, but up 1% in Australian Dollar terms, lifting 12 month returns to 31.5% for Australian investors.

The US market has reached new highs with valuations now looking concerning, with a correction more likely in the face of any bad news, while most other developed markets also rose with Spain and Italy posting impressive financial year to date returns of 43% and 35% respectively.

Emerging Markets were mostly flat again, but have kept pace with developed markets over the last three months, with Emerging Asia looking most positive.

Listed Property and Infrastructure

The Australian listed property trusts were has a strong month in April up 5.6% and outperforming other shares, reflecting improving fundamentals in the sector and the flat to down trend in bond yields, but is only up 2.5% for the 12 months to date.

Residential property has lagged commercial and retail sub-sectors in the year to date.

Fixed interest and Cash

Australian fixed interest rallied in April, despite some upbeat economic news that normally has the opposite effect since this is an asset class favoured in more troubled times.

Australian 10 year bond yields reached pushed down to 3.94% at month end (so prices rose) while US 10 year bond yields moved down to 2.65%.

For more specific help and guidance with your own investment strategy or asset selection, please don’t hesitate to contact Michael Rees-Evans CFP® in our office on 02 9299 7044 or by email at michael.rees-evans@lockwood.com.au

Important note: this information is based on opinions and information obtained from various sources deemed reliable, especially farrelly’s, Philo Market Monitor and van Eyk Research, with graphs sourced from Bloomberg and van Eyk. However, it is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.

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