Investment update 14 May 2018

Last week in the markets

Over the past week Australian shares were up 0.9% with small company shares up a similar amount. Shares in developed countries rose 2% with the US market up 2.4%. Shares in emerging markets rose 2.5%. The Australian dollar increased 0.1% to 75.43 US cents. The Australian 10-year bond yield increased slightly to 2.78%, mirroring the small increase in the US 10-year bond yield to 2.97%. The oil price rose 1.4% to 70.70 US dollars per barrel.

Reflections on the Federal Budget

The Federal Government’s Budget and Labor’s alternative budget were generous with many people set to benefit, which isn’t a surprise as we head closer to an election.

What’s interesting is the ideological differences in both budgets. The Coalition generally believes in ‘smaller government’ (less tax and government spending) and ’trickle down economics‘ (a belief that supporting businesses will result in them employing more people). Labor on the other hand is traditionally a larger ‘redistributor’ - taxing more and re-allocating to the lower and middle classes.

The role of Mine Super’s Investment team is not to judge the politics but to consider the implications of proposed tax and spending changes for the Australian economy. The broad message from both the Government’s budget and Labor’s alternative budget is positive; at a time where Australia’s economy is vulnerable, with risks to house prices and highly leveraged households, generous budgets should provide an economic boost. Both budgets are consistent with our core economic scenario for Australia of solid economic growth for the near to medium term.

Signing off

David Bell | Chief Investment Officer

Past performance isn't necessarily an indicator of future performance.

Data sourced from Bloomberg.