Market review - a strong year for investment markets
With global economic growth faring well, investment markets were strong throughout the financial year, hitting double digits for most asset classes. From November 2016, markets rallied following the unexpected election of US President Donald Trump; with many believing that a Trump leadership would contribute significantly to the economy as a result of fiscal spending, tax cuts and the deregulation of the financial sector. The US economy remained resilient despite reduced intervention from the Federal Reserve, which commenced its path to interest rate normalisation in December 2016 and announced plans to begin reducing the balance sheet in late 2017.
In Europe, economic recovery continued to be supported by the European Central Bank’s Quantitative Easing program, which was extended by 9 months until December 2017. In the UK, equity returns were below the broader European market as uncertainty regarding the path towards ‘Brexit’ was compounded by the results of the snap election in June, which led to a hung parliament.
Australia’s economy expanded reasonably over the year. A sharp reversal of commodity prices contributed positively to the domestic recovery and boosted Australia’s monthly trade surplus to the highest ever on record in December 2016. The Reserve Bank of Australia (RBA) held a more constructive view on the economy as the year progressed. Interest rates have been on hold since August 2016, when the RBA cut interest rates by 0.25% to 1.5% in an attempt to further support economic recovery.