January 2020 Market Update

Australian shares have smashed through the 7000 level in recent days, spurred on particularly by the signing of a long-awaited trade deal between the US and China. In the short term however, Australian shares may then fall after the long weekend amid fears the spread of the deadly coronavirus will hurt global markets.

Overnight the Australian dollar also took a hit, buying 67.57 US cents at 7am this morning, down from 68.46 US cents at the market close on Friday.

In the Australian property market, new data shows property sellers raked in a gross profit of $18.7 billion across Australia in the September 2019 quarter.

CoreLogic's latest Pain and Gain Report found almost nine in ten (87.4%) of property resales in that three month period sold for a price higher than the original purchase price. Comparatively, only 12.6% of all resales in that same period sold at a loss.

This comes off the back of a steady rise in properties sold at a loss between mid-2017 and mid-2019 when house values fell by 8.4% from peak to trough. In our capital cities, Hobart has been the best profit performer in the last 12 months.

In US markets shares were punished on Monday as the impeachment proceedings on Capitol Hill continued ramping amid more reports of the coronavirus throughout the world. However, the US productivity measures of employment levels remain very sound.

Gold prices have started the year well and some of the key drivers have been the lower U.S. dollar, negative-yielding debt, low-interest rate environment, and increased physical demand for Gold. 

What this means for you

The coronavirus appears to be posing serious health consequences for those affected. From a market point of view, the closest comparison we have is the SARS outbreak in 2002 – 2003. The chart below indicates how the market performed over that period of time:

While short term fluctuations can be expected, the SARS outbreak had no significant impact over the longer term.

The media is also making murmurs of a correction now that the Australian market has reached its all-time high level and crashed through the elusive 7,000 point mark. However, the fact remains that it has taken 10 years for this to be achieved after the GFC. In the short term, we’re unsure of where our market will head, which is all the more reason not to make short term decisions on a long term asset.

With your share portfolio, consider what your alternatives are if you sell out of a position. What will you do with the money once it’s converted to cash? Our recommendation is to apply a sound level of discipline to your overall investment program, and to re-balance your portfolio with the same method applied. This helps to remove unnecessary emotion from decision making, and to control some of the inherent risk in growth assets. Disciplined investing and rebalancing over time is the easiest form of self-control available to us as investors.

If you have any queries about this week’s article, please don’t hesitate to contact us. We’re only a phone call or email away.