By Tim Schroeders, Investment Research Department - Australian Unity Personal Financial Services
The Australian sharemarket finished the 2017/18 financial year with a solid gain of 13%.
A favourable global macro-economic backdrop provided the tailwind for this result, in particular:
These tailwinds should continue for some time, however there are also potential headwinds going forward for the Australian sharemarket. For example:
Two Australian sharemarket sectors have defied the upward trend
The Australian sharemarket, despite posting another solid financial year’s performance, has provided challenges to investors as market leadership continues to evolve. Market sectors such as Financials and Telecommunications, which have been excellent performers for the past 10 years, have been out of favour with investors over the past six months.
The Telecommunications sector – driven predominantly by Telstra – was down 23.2% for the first 6 months of 2018.
The Financials sector – accounting for nearly one-third of the S&P/ASX 200 – was down 2.1% for the first 6 months of 2018.
On the other hand, Healthcare was a standout sector for the first half of 2018, posting a return of 24.5%. Materials (+8.1%), Consumer Staples (+12.3%) and Energy (+11.8%) were amongst the other strongest performing sectors for the half year to June 2018.
In the medium to longer term the Australian sharemarket should continue to provide healthy returns for investors. Notwithstanding the challenges of a housing slowdown, changing market leadership and geo-political uncertainties, the environment is conducive to growing earnings. However, it is probable that returns over the next five years are unlikely to match the 10% p.a. achieved over the past five years as the prospect of rising interest rates, a housing slow down and potential trade war serve to temper growth in the future.