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Investor outlook for the new financial year

CommBank investor outlook for the new financial year

With the 2016-17 financial year wrapped up, it's time to look at what might be ahead for Australian investors.

Total returns on Australian shares were up 13.1% over the past financial year, making it the best in three years, keeping pace with returns on dwellings, which recorded a 13.2% gain, while returns on government bonds fell by 0.8%, the weakest result in 23 years, according to a report from online broker CommSec.

The MidCap 50 index was up 14.2%, the ASX 100 gained 9.7%, the ASX 50 rose 9.1% and Small Ordinaries were 3.7% higher over the 12 month period, CommSec said.

The Australian economy grew around 1.75-2% in 2016-17 according to CommSec, which estimated it could grow by around 3% in 2017-18.

The Australian dollar rose 3.6% over the financial year, tracking a US6.25 cent range against the American dollar, making it the least volatile year in 27 years. 

What to expect this financial year

Craig James, chief economist at CommSec, believes that the stability in the Australian sharemarket will continue into the next financial year.

“Over the coming year, CommSec expects the All Ordinaries index to be near 5,900-6,100 points at end-December 2017 and 6,000-6,200 points in June 2018,” he said.

“Home prices nationally are likely to grow by 5-7% in 2017-18 with inflation around 2.0%. The Aussie dollar is expected to remain in the mid-70s against the US dollar over most of the coming year.”

Impacts from overseas

Outside Australia, there are some events that could have an impact on sharemarkets.

“Is he [US President Donald Trump] going to be successful in cutting taxes and increasing infrastructure spending? That’s what the markets have been rallying on. If they don’t get it they could go to Plan B,” James said on CommSecTV.

“What we need to see for investors is being alert and not alarmed. That is probably the catchcry for the coming financial year. There are going to be plenty of opportunities. Particularly with disruption continuing to prevail over industries across the globe,” said James.

Michael Blythe, chief economist at CommBank, points to action in China as having a potential impact on commodity prices in the next year.

“We expect commodity prices will fade through FY18 as China’s consumption wanes following elections in the fourth quarter of 2017 and a government reshuffle in first quarter of 2018,” he said.

“We see oil prices lifting by year-end as members of the OPEC-led deal look to reduce exports in line with production. We see oil prices retreating after the deal expires at the end of the first quarter of 2018 on expectations that deal participants will struggle to execute an exit strategy that slowly brings on the oil supply that is currently sidelined.”

In an interview with CommSec, Blythe said that increased infrastructure spending in Australia was likely to continue to promote economic growth. He also mentioned income growth among Asian countries as something that could impact the Australian economy and sharemarket.

“We’ve already seen it in areas like agriculture and we’re increasingly seeing it in areas like tourism and education.

"Where we’re going to see an increasing impact coming through from the nation income story [increases in national income among Asian countries] from here will be in sectors like health and financial services as well.”

Winners in 2016-17

It might have been a volatile year in global politics, but it was the least volatile year in 16 years with the All Ordinaries index at 5,764 points at the end of the financial year.

Returns on shares recorded the best gain in three years and sharemarket returns have only fallen once in the past seven years, according to CommSec, which identified the best performing sectors over the past financial year as:

Consumer Durables up 40.7%

Food, Beverages and Tobacco up 29.1%

Capital goods up 26.3%

According to Bloomberg data the best performing companies over the past financial year were:

Whitehaven Coal (ASX:WHC)  +151.75%
a2 Milk (ASX:A2M) +113.64%
Qantas Airways (ASX:QAN) +107.25%
BlueScope Steel (ASX:BSL) +104.17%
Sims Metal Management (ASX:SGM)  +86.49%

CommSec said Telecommunications was the worst performing sector over the past financial year, down 26.2%.

According to Bloomberg data, the companies that fell the most in value over the past financial year were:

Vocus (ASX:VOC)  -59.99%
Syrah Resources (ASX:SYR)  -53.60%
TPG Telecom (ASX:TPM) -51.41%
Aconex (ASX:ACX) -50.60%
Mayne Pharma (ASX:MYX) -42.13%

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.