Investment update 27 August 2018

Last week in the markets

Over the past week Australian shares fell 1.2% while small company shares rose 2.3%. Shares in developed countries rose 1.1% with the US market up 0.9%. Shares in emerging markets rose 2.7%. The Australian dollar was up slightly to 73.29 US cents. The Australian 10-year bond yield fell slightly to 2.54%, with the US 10-year bond yield falling to 2.81%. The oil price rebounded 4.3% to 68.72 US dollars per barrel.

Does political chaos lead to market turmoil?

A new weekly investment update and a new prime minister!

Globally, Australia is attracting the media’s attention. The Economist has the headline “Uneasy lies the head”, noting Australia’s fifth prime minister in five years.

But does political turmoil translate into market turmoil?

Generally not. ANZ analysed consumer and business confidence over the past 18 years and found that in periods of political turmoil the initial response is a fall in consumer confidence, but business confidence remains largely unaffected. ANZ sceptically suggest this is because business already has a low opinion of politicians.

There has been no clear loss of confidence coming through markets. The Australian dollar / US dollar exchange rate dropped 1% in a day but quickly bounced back. Australian shares dropped a little through the week but there are many factors which could explain this.

Over the near term, as we face an election, we are monitoring for policies that angle for the popular vote but come at a high budget cost. There is also a high likelihood of a change in government which would see a change in a number of key policies.

Signing off

David Bell | Chief Investment Officer

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

Data sourced from Bloomberg and ABC.