Investment insights

Want to know the stories behind the numbers? We had Chris talk us through the latest market activity and what’s on the horizon:

After a year of ups and downs in which it weathered lockdowns, cautious reopenings, and the rise of the Omicron wave over the festive season, the Australian sharemarket ended the calendar year on a positive note.

The benchmark S&P/ASX 200 index ended the calendar year at 7444.6 points on December 31, having gained 13 per cent over 2021. Behind this gain was strong performance from the financial, telecommunications, and consumer discretionary sectors.

The consumer discretionary sector encompasses a range of businesses, including retail, consumer services like hospitality and leisure, and the auto industry.

Data from the Australian Bureau of Statistics (ABS) found that, while retail trade figures fell 4.4 per cent month-on-month from November to December 2021, retail turnover had risen 4.8 per cent compared with December 2020.

The drop month-on-month also followed a significant rise of 7.3 per cent in November, when lockdowns eased around the country.

According to the ABS, pent-up consumer demand following lockdown, combined with an extended November sales period, saw consumers bring forward their Christmas spending to take advantage of sales and minimise delivery and stock availability concerns ahead of the festive season.

This combination saw record sales in clothing, footwear and personal accessory retailing, household goods retailing, and department stores through November. As consumers returned to eating out, hospitality venues such as cafes and restaurants saw an increase in spending, while supermarkets and liquor stores saw a decrease.

Though the run into the new year wasn’t exactly smooth sailing, with Australian and global equities declining in January 2022, the outlook for the year seems likely to be volatile but broadly positive.

As Chris explained, there’s a lot of talk of higher inflation and increasing interest rates – and yes, interest rates will move higher over the next 12-18 months. But as he explained, it’s important to remember that rates won’t go back to their pre-pandemic levels all at once, but rather will rise gradually.

“The first increase, when it happens, will still only be a small increase on what is a record low rate,” he said.

In its first meeting of 2022, the Reserve Bank of Australia (RBA) board held steady on the cash rate, keeping it at 10 basis points (or 0.10 per cent).

In explaining the decision, Governor Philip Lowe said, “The Omicron outbreak has affected the economy, but it has not derailed the economic recovery. The Australian economy remains resilient and spending is expected to pick up as case numbers trend lower.”

The RBA’s American counterpart, the US Federal Reserve, also kept rates on hold at its January 2022 meeting, though indicated that a rise would be likely in March.

So, what will any increases mean for your super?

“History typically shows that, in a year when rates rise, sharemarkets do tend to fall a little, but they will typically still end up higher overall 12 months later,” Chris explained.

“In addition, rising interest rates tend to result in negative returns in long-duration government bonds. However, our fixed interest portfolio has low exposure to these, making the fixed interest portfolio well positioned to weather a rising interest rate environment.”

Chris added that, as always, it’s important to look past the short term ups and downs of the market and focus on the long term.

If there’s one thing Chris has told us time and again, it’s that markets don’t like uncertainty.

So, it stands to reason that, with increasing uncertainty about the relationship between Russia and Ukraine, markets around the world may get a little concerned.

According to the ABC, a conflict could have an effect on a range of commodities supplied by Russia, with Russia supplying around 30 per cent of Europe’s oil and 35 per cent of its natural gas. Meanwhile, Russia is also the world’s biggest grower of wheat, and exports a significant share of metals.

The Guardian reported that US Senate’s Foreign Relations Committee in early February worked to develop sanctions against Russia that Committee Chair Bob Menendez said would be “crippling” to Russia’s economy.

Our Investment team and investment managers around the globe will be keeping close watch on developments.