Economic & Market Briefing March 2019

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Diversified investment portfolio’s have recovered strongly during the start of 2019; resulting in robust absolute performance for the 12 months ending 28 March 2019. Market confidence was reinstated over the quarter as a consequence of relative political stability and easing monetary policy pressure from central banks. Total returns were further benefited by the downside protection illustrated by portfolios during market selloff in late 2018.

To better understand the economic and market influences during the start of 2019, as well as gain further insights into the following 12 months, we have summarised a selection of commentaries from market leaders. The following provides an overview as to the current positioning of both economies and markets in Australia and overseas.

Quarter 1: 2019 in Review

Economic Summary

On the back of the largest market dislocation in recent years, 2019 began with an abrupt recovery, seemingly upon the acceptance by both investors and central banks of a global economic deceleration and an interest rate flatline. The world’s economies are being underpinned by solid labour markets, which are helping to drive consumption for services in developed economies and imports in emerging economies. Global political uncertainties have contributed to the sluggish economic indicators starting to show in 2019. While the pace of growth slowed toward the end of 2018, the potential for fiscal loosening, an easier monetary policy stance and a firming of emerging market currencies will help keep the global expansion alive. Sentiment however remains mixed with various risk factors enduring, including; trade policy changes, Brexit and the existential challenges to the European Union and monetary policy normalisation.


Australian Economy

Over the quarter, the Reserve Bank of Australia (RBA) shifted its monetary policy stance to neutral, stating that the probability for the next move in the policy rate was evenly balanced between a hike and a cut. This contrasts with the previous rhetoric of a rising rate environment which reinforced an equity market recovery. Local economic data has started decelerating from its 2018 peak, despite a robust labour market. The tailwind from global growth last year has subsided and the outlook for household consumption remains uncertain as house prices continue to fall. As a result, the RBA has revised down its GDP growth and inflation forecasts, making sizeable revisions to the short-term outlook. Given the tightening in global financial conditions and ongoing weakness in the domestic housing market, the current consensus is that the RBA will keep rates on hold for the intermediate term, with the balance of risks skewed to the downside.

International Economy

Global central banks signaled more accommodative stances as recent economic data indicated decelerating growth. The eurozone continued to see softening growth metrics, most notably in manufacturing, which fell into contractionary territory for the first time since June 2013. The recent weakness, combined with a warning from the European Central Bank (ECB) that the slowdown “may be broader and longer-lasting than originally forecasted,” pushed out expectations for a rate hike well into 2020. Meanwhile, the Bank of England cut its growth and inflation forecasts (citing Brexit concerns), which shifted from a tightening bias to a more symmetric policy stance. In the U.S, the Federal Reserve emphasized its “patient” approach and indicated the possible conclusion of balance-sheet normalization later this year amid mixed economic data: Stronger-than-expected GDP growth and large payroll gains in January contrasted with softer-than-expected December retail sales.

Optimism over U.S.-China trade talks helped bolster market and economic sentiment, while other geopolitical developments were more mixed. The ongoing conflict between the U.S. and China took a positive turn after President Donald Trump announced he would postpone a 1 March tariff increase as the two countries continued to make progress toward a deal. Beyond China, optimism on trade was more moderate. The Trump administration indicated it may impose tariffs on Japanese and European auto industries in the name of national security.


Brexit, mother of all messes
Deal or no deal?

In the UK, Prime Minister Theresa May has failed in her efforts to reach a Brexit agreement with the European Union that satisfies her own Parliament. March 29th was meant to be the day when Britain left the European Union, instead May’s Brexit deal was rejected again, again. The government is now left to formulate a plan prior to the 12 April if it is to avert a no-deal Brexit; where the UK would find itself with no legal arrangements to smooth trade and other transactions with its neighbours; affecting cross-border commerce.

It is more likely that some kind of deal with the EU will be reached, probably involving a type of free trade arrangement with minimal tariffs on trade in goods, yet with no harmonisation of standards as occurs in the European Single Market. This would be costly for the UK economy and still constitute a moderately "hard" Brexit. Less costly would be some variant of a so-called "soft" Brexit. This could be achieved by staying in the customs union with the EU, though this prevents signing trade treaties with non-EU countries or joining some variant of the European Economic Area. Either way, these options would be much less detrimental in terms of economic impact but neither would realise many of the possible benefits of leaving the EU, since the UK would not be able to curb EU immigration and would need to continue to pay into the EU.

Brexit has been on investors’ minds since the referendum back in 2016, though the uncertainty remains pertinent. So far, the exchange rate has borne the brunt, falling around 10% since the referendum; UK equities have been weaker than the forecast expectations, while UK fixed income has been robust, as the Bank of England policymakers have held off raising interest rates. With so much uncertainty, investors must focus on a long-term horizon.


Market Summary

Australian Equities

The S&P/ASX 200 Accumulation Index experienced a year of significant fluctuations in rapid succession, with the most recent being a substantial recovery from late December lows. Returns for the 12 months are high; 12.06% for the period, placing the Australian market as one of the strongest developed market performers for the period. The chart below highlights this performance;

ASX/S&P ASX 200 Accumulation Index – 12 months to 28 March 2019

Reporting Season Wrap

With the Australian reporting season finalised for Q1 2019, we gain vital insights into ‘Corporate Australia’, which appears down from its peak last year. Almost 93% of companies reported a statutory profit for the six months to December, however only half of these companies lifted profits when compared to the year before. Dividend payments remained high, however the total number of companies electing to pay a dividend was 83%; below the long-term average of 86%.

These results were not completely unexpected, as Australian companies have not been immune to global events, including; the China-US trade war; Brexit (BXB, RWC); global financial market volatility (CGF); political factors and uncertainty (HSO, CSL); falls in Australian house prices; and on-going soft wage growth and consumer attitudes (COL, WES, WOW). Some companies even highlighted weather influences including wet weather in Sydney (SUN, QBE and TCL).

Global Equities

The new year has brought with it a new wave of optimism, with equities and credit rallying strongly across the world. The sell-off in equities and credit in the final quarter of last year was caused predominantly by concerns about the potential for an escalation in the trade war between the US and China, fears of higher interest rates and broader worries about a slowdown in global growth. The revival in investment sentiment has occurred despite a moderation in global economic growth. The MSCI World ex Australia index returned 12.3% for the year to 31 March 2019.

US equities rose, fuelled mainly by an increasingly dovish tilt in Federal Reserve commentary, ‘apparent’ progress in US-China trade talks, and as the government shutdown ended. The S&P 500 Index has continued its blistering run, returning 9.5% to 31 March 2019, making up 13.65% in 2019 alone.

Eurozone equities also recovered well, supported by central banks stepping away from tighter monetary policy. However, worries over economic growth lingered throughout the first quarter. The MSCI Europe Ex UK has had a strong 3 months, returning 10.45% over the period, however political uncertainties have adversely impacted the annual returns; 5.09%. UK equities performed well over the quarter, despite ongoing Brexit-related uncertainty, with the FTSE 100 TR index returning 7.69% to 31 March 2019.

Japanese shares gained for the quarter, but the advance was muted compared to other developed markets; as total returns were held back by some significant daily losses. The Nikkei 225 Average PR returned -1.16% for the year. The MSCI Asia ex Japan index posted double-digit gains though it slightly underperformed the MSCI World index. All markets in the region closed higher, helped in part by progress in US-China trade negotiations.

Emerging markets (EM) equities registered a strong return in Q1 of 8.94% (MSCI EM NR AUD) but only breaking even for the annual returns. Optimism over a trade agreement with the US and ongoing government support for the Chinese domestic economy were beneficial to the index yet returns amongst individual countries was highly varied.

Sustainable Investing

The once niche area of investing with an eye on environmental, social and governance (ESG) issues has now moved into the mainstream. Initially driven by HNW millennial investors, over 90% of asset managers now consider ESG overlays an important factor in portfolio construction and one that can improve resilience during market downturns. Interested in sustainable investing? Get in touch to see your options.




The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2019 Federal Budget on 2 April 2019. As widely predicted, the announcement included a range of tax cuts for both individuals and businesses. The Treasurer also announced increased funding for regulators to encourage tax and superannuation compliance, several positive changes to superannuation, and an affirmation of previously announced aged care measures.

  1. The 2019/20 Budget was pleasing; with the government increasing spending significantly on the back of better than expected revenues and without an increase in taxes.
  2. Budget repair was a highlight with the underlying cash balance expected to return to surplus in 2019/20 for the first time since 2007/08. This should be welcomed by the ratings agencies as well as those voters who applaud solid economic management.
  3. The overall positive tone of this budget and ongoing government expenditure, without increasing taxes, places this budget in the ‘as good as it gets’ camp and should be welcomed by investors.

This summary provides coverage of the key issues we believe of most interest to you;


  • Low and Middle Income Tax Offset from 1 July 2018. Low and middle income tax offset doubles to a max of $1,080.
  • Increase in tax bracket thresholds from 1 July 2022. From 1 July 2022, the Government will increase the top threshold of the 19 per cent personal income tax bracket from $41,000, as legislated under the plan, to $45,000.
  • Reduced marginal tax rate from 1 July 2024. From 1 July 2024/25, the Government will reduce the 32.5 per cent marginal tax rate to 30 per cent. In 2024/25 an entire tax bracket, the 37 per cent tax bracket will be abolished under the Government’s already legislated plan.


  • Increasing and expanding access to the instant asset write-off. Extension of the provision allowing small business to instantly write-off assets from $25k to $30k and expanding to include medium size businesses with annual turnover of $10-50 million pa.
  • Further consultation on amendments to Division 7A. The Government will defer the start date of the 2018-19 Budget measure, Tax Integrity - clarifying the operation of the Division 7A integrity rule, from 1 July 2019 to 1 July 2020.


  • Work test changes. From 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test.
  • NCC bring-forward arrangements. The cut-off age for the bring-forward of up to two future years of the non-concessional contribution (NCC) will be extended by two years. This means NCCs of up to $300,000 can be made in one financial year.


  • Energy Assistance Payment. The Government will provide $284.4 million over two years from 2018-19 to make a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 April 2019 and who are resident in Australia


  • Improving the quality, safety and accessibility of aged care services. The Government affirmed its announcement on 10 February 2019 issued by the Prime Minister, Minister for Health and Minister for Senior Australians and Aged Care to provide $724.8 million over five years from 2018-19 to support older Australians through further improvements to the quality, safety and accessibility of residential and home care services.
Final Remarks

“This Budget needs to be seen in its political context. It’s more like an election manifesto than a traditional Budget and big questions remain around what parts, if any, will actually be implemented.” Alan Oster, NAB Group Chief Economist

“The proposed income tax cuts are… well targeted and will ameliorate family financial pressures and may also help stimulate consumption and savings.” Paul Drum, CPA Australia Head of External Affairs

“There is a cost to prioritising tax cuts over budget repair. And it’s future generations who pay it.” Jessica Irvine, Senior Economics Writer

“This is a Budget set for growth, but behind every number in the Budget is the unknown effect of the housing downturn,” Ken Morrison, CEO Property Council of Australia


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Reserve Bank of Australia, OECD, Franklin Templeton Investments Australia, BT Investment Management, Yahoo Finance, Visual Capitalist, JP Morgan, Colonial First State, Market Index, Schroder Asset Management, The Economist


All care has been taken in preparing this report. However, please note we base our financial product research on current information provided to us by third parties (including financial product issuers) which we cannot necessarily verify. While we use all reasonable efforts to obtain information from reliable sources, we do not guarantee the data or content contained herein to be accurate, complete or timely. To the extent that our research is based on information received from other parties, no liability is accepted by Investment Professionals, its affiliates nor their content providers for errors contained in the report or omissions from the report. Past performance is no guarantee of future performance. Index returns are based on the country of domicile.

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