Steering through choppy seas

Steering through choppy seas



The ongoing US-China trade war and Brexit confusion in Europe have increased market uncertainty and volatility and put a spoke in the wheel of global growth. The Organisation for Economic Co-operation and Development (OECD) forecasts global economic growth to ease to 3.3 per cent over 2019. It expects Australia to grow at 2.7 per cent.i


Why negative rates?

Negative interest rates have been a feature of the global financial landscape since the GFC, in Japan and in Europe. European central banks charged banks to hold their deposits, encouraging them to lend out cash instead to kick start economic activity.

So far, the Reserve Bank hasn’t followed suit, but we are edging closer. The cash rate is at a record low of 0.75 per cent with further cuts expected.

Most economists think the Reserve Bank is unlikely to take rates below zero. Taking interest rates too low could run the risk of igniting another property boom.


What is quantitative easing?


There has been much debate about whether quantitative easing worked as intended. What it did do was push investors into higher-risk assets such as shares and property in pursuit of better returns.


The slowdown in economic growth in Australia and elsewhere is reflected in falling bond rates. In recent times more than 10 European governments have issued bonds with negative interest rates. ii


What does this mean for me?

It seems more than likely that bank deposit rates will stay low for some time. That means investors seeking yield will continue to look to property and shares with sustainable dividends. But it may not be plain sailing.


After a decade of positive returns, and average annual returns of 7 per cent from their superannuation funds, investors may need to trim their expectations.

Time to plan ahead


If you are close to retirement or already there, you need to have enough cash to fund your pension needs without having to sell assets during a period of market weakness. For the balance of your portfolio, you need a mix of investments that will allow you to sleep at night but still provide growth for the decades ahead. When markets recover, you want to catch the upswing.






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