Investment18 March 2019

What to expect from investments in 2019

Mark Williams
Mark Williams
Head of Listed Investments and Strategy

2018 was a mixed year for investors. The first nine months produced very healthy returns across asset classes, but much of this was handed back in the final three months.

All of Tasplan’s diversified options achieved small positive returns in 2018 after investment fees and taxes. Two options had slight negative returns – the Australian shares and International shares options – but well within the expected range of what we see from these asset classes which are always more volatile.

What should we expect in 2019?

It’s impossible to predict everything about the year ahead, but there are some important things that we need to look out for. Debt levels, share market valuations and the trade war between the US and China are three potential risks or opportunities. Brexit may or may not happen this year, but we don’t expect it to have a material impact on your investments.

House prices and debt levels in Australia

The very high level of household debt in Australia remains a concern. Australia’s economy over the past few decades has been fuelled by steadily increasing debt levels. Borrowing money brings forward consumption and makes our current situation look good. The catch is that once debt levels stop increasing, the economy slows but there’s still the issue of high debt levels to deal with.

The trigger for debt levels reducing has been falling house prices in the big cities and tighter lending standards from banks following the royal commission. This trend could continue for some time which has the potential to reduce performance from shares.

It’s good news for first home buyers as house prices come back down to a more affordable range. If it also leads to falling interest rates, then it’s positive for fixed interest returns which will counteract other asset classes.

Equity markets

Most share markets globally fell in the last three months of 2018, partly because of the US-China trade war and partly because parts of the market had become too expensive. We trimmed our exposure to shares during 2018 as prices rose, particularly to technology stocks which had an incredible run. We’ll continue to monitor prices for further opportunities to sell or buy shares.

Trade war

Trade issues will continue to unfold between the US and China this year and may drag on for years. Trade restrictions such as tariffs are negative for share markets, but much of this bad news has already been factored into prices. More recently, news on the trade war has been a source of volatility depending on whether the news is good or bad, but hasn’t continued the downward trend of late 2018.

China

China has its own challenges as it’s an economy in transition and also has a very high level of debt. If China has major problems, then the worst hit may well be countries like Australia that supply it with natural resources. We have relatively little direct investment into China, but are cautious that Australia might be impacted.

Summary

We expect 2019 to be a year of modest returns similar to 2018. The risks discussed here have mostly been priced in by markets, and shares are less over-valued than they were in the middle of 2018. Central banks could still have a big impact on markets if they do something unexpected with interest rates, but they appear committed to slowly bringing rates back to more normal levels.

Past performance isn’t a reliable indicator of future performance.

This article contains information or advice that’s intended to be general in nature and which was prepared without taking into account your personal objectives, financial situation or needs. Because of that, before acting on any information or advice in this article, please consider whether it’s appropriate to your personal circumstances, talk to a financial planner and consider the relevant Member guide, available at tasplan.com.au or by calling 1800 005 166, before making a decision about whether to acquire the products. The trustee of Tasplan Super (ABN 14 602 032 302) is Tasplan Pty Ltd (ABN 13 009 563 062).

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