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Weaker sharemarket returns signal what's ahead


17 May 2018

House view





More subdued sharemarket returns this year are broadly in line with our expectation that good times would fade, writes ANZ's chief investment office.

Since January global sharemarkets have delivered modest to flat returns, revealing what I consider to be a weakening spirit, in line with our forecast back then that the good times for equity investors were fading.

In the past five months both international and local shares have delivered flat to small positive returns, with the weaker Australian dollar resulting in stronger returns for unhedged international shares.

Compared to the roar of the high-return markets of recent years, this subdued state reveals the more challenging environment markets will continue to contend with in 2018.

And what’s causing the headwinds to sharemarkets?

  • Trade friction, primarily between China and the United States
  • Slow increasing of the US federal funds rates, which is pushing up interest rates (and talk of more to come)
  • General signs that the solid global growth we’ve experienced is easing

That middle point is the real one to watch. For example, in early May, the US Federal Reserve left interest rates unchanged but noted that inflation is close to target and the economy warrants further gradual rate increases. This is not unexpected, and we believe gradual rate rises from the US will prove challenging for markets as the year progresses particularly if wages and inflation were to accelerate.

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Don’t lose faith in shares

Given all that, there’s no surprise there’s talk about growing risk in financial markets. As the chief investment office has previously noted, we are late in the investment cycle. A downturn of some degree will be coming. But for now the sharemarket is still delivering moderate returns in line with our good times fade outlook.

Companies’ growth and earnings prospect remain solid, and financial conditions, principally from developed nations, are supportive of growth if central banks can remain on a gradual tightening trajectory.

The recent recovery in returns likely reflects support from these drivers but as we’ve said all year, overall we expect good times will continue to fade as rates shift higher.

ANZ investment strategy - May 2018

Investment strategy
Asset class Tilts Positions
Growth assets: Neutral
Australian equities Neutral We expect New Zealand and (more so) Australian equities to perform well relative to bonds and offer an attractive yield.
Emerging markets Neutral This asset class has delivered strong returns, but concerns that slower growth in the Chinese industrial sector in conjunction with gradual Fed tightening will become headwinds in the year ahead.
Listed real assets1 Neutral Real estate markets and infrastructure have underperformed on the back of rising interest rates.
Defensive assets: Neutral
Fixed income Underweight  
Australia Neutral Low but positive returns as interest rates rise overseas.
International Underweight Central banks are tightening monetary policy, though at a slow pace.
Cash2 Overweight  
AUD/USD Neutral While global growth is supportive for now, high US rates could dampen the Aussie’s prospects.
NZD/USD Underweight The New Zealand dollar is above fair value. And we expect the greenback to get stronger.


Equities, fixed income and cash are relative to benchmark. Currencies are relative to an absolute return outlook (short term).

1. Comprises of 50/50 split between GREITs and infrastructure securities.

2. Cash is the balancing asset class. Cash is a residual to Portfolio Manager’s overall implementation of other asset class strategies. It continues to form part of the overall defensive asset allocation, with PMs having flexibility in terms of how to implement the stated defensive asset strategy across fixed income and cash.  In the RIC model cash overweight to facilitate an underweight position we hold in international bonds and to manage overall fund duration.

Read the full Chief Investment Office House View (PDF 174kB)


Mark Rider, former Chief Investment Officer

Mark brought over 30 years of investment market experience to ANZ, having previously worked at UBS and the Reserve Bank of Australia. During his seven-year tenure at ANZ Mark was responsible for and contributed to the overarching investment philosophy, investment strategy and asset allocation of ANZ Private Banking.


To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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