2017 was a positive year for the global economy with the US S&P 500 up 21% and MSCI Europe index gaining 14% over the year.
Technology stocks were the star performers, particularly in the United States (US) with the total return of the NASDAQ Composite index up 28% over the year, driven by share price surges of the so-called FAAMGs: Facebook, Apple, Amazon, Microsoft and Google (parent company Alphabet).
Across Asia, markets were also stronger with Hong Kong’s Hang Seng index up 37% as China continued to demonstrate solid economic growth in the face of weak expectations. Japan’s market enjoyed a 19% increase thanks to improving economic growth of its key trading partners.
Central bank policies remain a key influence
Currency trends were broadly driven by the US dollar index, an index which records the value of the US dollar relative to a foreign currencies, which recorded its largest annual loss (-10%) since 2003. Low inflation weighed on perceptions of how high the central bank would raise rates, and strong economic performances by countries around the world made the US dollar less appealing.
A big part of the US dollar’s decline was due to the Euro’s strength, which together with the British pound, clawed back the previous year’s losses following the Brexit referendum to record +14% and +10% respectively. This was mainly due to stronger than expected economic data and receding regional political risk.
Solid performance from our share market
Closer to home, our dollar ended the year at US$0.78, made stronger by gains in commodity prices and higher interest rates when compared with other developed countries. Our economy is gradually improving amid better global growth but wages growth, while increasing, remains relatively low. And like many other developed countries, inflation remains below the central bank’s target spurring monetary policy to remain accommodative despite improving economic fundamentals. This stimulus is being gradually removed in the US but elsewhere policy rates
The Australian bond yield curve flattened over the year with the 10-year Commonwealth Government Bond yield dropping 0.15 basis points. The Reserve Bank of Australia kept the target cash rate steady throughout the year at the record low rate of 1.5% with the market now pricing in a rate hike of 25 basis points in 2018.
How we performed
Against this backdrop our managed funds and superannuation investment options delivered strong absolute returns for our investors, with the International Shares Fund the best performing managed fund delivering 13.6% for our wholesale investors and 12.5% for our retail investors (after fees).