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Property, bonds lead gains over shares in 2016

Property, bonds lead gains over shares in 2016

Gains in property and bonds lead the investment pack for the 2015-2016 year, way ahead of shares that are likely to rise by less than 1%, according to CommSec research.

With the financial year almost over, CommSec's chief economist Craig James notes that "overall it has been another challenging year". But at this stage it appears that all three asset classes - property, bonds and shares - will end the 12-month period higher for the third consecutive year.

Interest rates and the Australian dollar are both lower, he said in a note.

Returns on dwellings are up 13.9% at the time of writing, while bonds have lifted 7.3%.

Total returns on Australian shares (All Ordinaries Accumulation index) are currently up 0.6% for the year, compared with a 20-year average of +10.8%.

"It is clear that Australia is one of the great global survivors," James said. "Inflation is under control, while record low interest rates and a lower dollar are maintaining the record economic expansion into the 26th year."

The economy has grown by around 3% in 2015-16 and CommSec expects similar growth in 2016-17.

"Underlying inflation may lift from 1.6% to 2.0% over the coming financial year while unemployment may ease modestly from 5.7% currently to around 5.5%," James forecast.

CommSec expects the All Ordinaries index to be near 5,500-5,700 points at the end of December this year. The Aussie dollar is seen at US73 cents in December. 

Here's a snapshot of the data so far from CommSec for the 2015-2016 year:

Interest rates

  • The cash rate stands at a record low 1.75%, down from 2.00% at the end of June 2015, and courtesy of a quarter per cent rate cut in May 2016
  • The market-determined 90-day bank bill rate has fallen from 2.15% to 2.00% over 2015-16. Yields on the long bond – 10-year government bonds – have held between 2.02% and 3.11%. Long-bond yields hit record lows on June 16 and now stand at 2.12%

Currencies

  • The Aussie dollar has fallen around 4% over 2015-16. The Aussie started the year around US77 cents and is currently around US74 cents. We've calculated that the Aussie is 76th strongest against the US dollar of 117 currencies tracked. The strongest currencies have been the Japanese yen (up 15%), Ghanaian cedi (up 13%), and Icelandic krone (up 7%). Weakest currencies have been Surinam dollar (down 114%), Malawi kwacha (down 63%) and Mozambique metical (down 59%)
  • In the six months of 2016, the Aussie dollar is up 2% against the US dollar, making it the 38th strongest of 117 currencies tracked. The strongest currencies have been the Brazilian real (up 14%), Japanese yen (up 13%), and Russian rouble (up 11%). Weakest currencies have been Surinam dollar (down 76%), Venezuelan bolivar (down 59%) and Mozambique metical (down 30%)
  • The high for the Aussie dollar so far in 2015-16 was US78.48 cents on 21 April and the low was US68.24 cents on 15 January 

Commodities

  • Iron ore has fallen 16% over 2015-16 with thermal coal down 13%, beef down 11%, crude oil down 18%, nickel down 23% and copper down 21%
  • Gold is up 10%, and sugar, up 67%

Sharemarket

  • The Australian sharemarket started 2015-16 with the All Ordinaries at 5,451.2 and the ASX200 at 5,459.0. Currently the All Ords is near 5,249.3 points (down 3.7%) with the ASX200 at 5,162.7 (down 5.4%). We estimate that Australia is 24th of 73 global bourses and only 18 bourses have managed gains. The best performers have been Latvia (up 41%) followed by Slovakia (up 21%) and Hungary (up 20%). Worst performers have been Greece (down 43%), Russia (down 29%) and Columbia (down 23%)
  • In the six months of 2016, the All Ordinaries has fallen by 1.8%, ranking Australia 35th of 73 nations. The strongest performers have been Peru (up 39%), followed by Russia (up 20%) and Pakistan (up 18%). Worst performers have been Italy (down 21%), Zimbabwe (down 19%) and China (down 18%)

Investment returns

  • Total returns on Australian shares (All Ordinaries Accumulation index) are currently up 0.6% over 2015-16. Returns on dwellings are up 13.9% while returns on government bonds have lifted by 7.3%. Returns on bonds, property and shares are all up over the year for the third straight year

Sectors & size groupings

  • Of the 21 identified industry sub-sectors, only eight have recorded declines so far in 2015-16
  • Leading the gains has been Food, Beverages & Tobacco (up almost 29%) followed by Automobiles & Components (up almost 27%) and Pharmaceuticals & BioTech (up 23%)
  • At the other end of the scale, Energy has fallen by 27%, followed by the large Banks sector (down 18%) and equally large Materials sector (down 10%)
  • Of the size categories, the MidCap 50 index has out-performed, (up 14%), from the Small Ordinaries (up 11%), ASX 100 (down 6.5%) and ASX 50 (down 9%)

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. 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.