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Market update: Why 2016 was unusual

1/02/2017

Overall, 2016 was an unusual year for investors. At a time of minimal earnings growth for companies, widespread monetary stimulus by central banks helped support share markets.

The unexpected

Britain's unexpected decision to leave the EU in June 2016 and Donald Trump's success in the Republican Party primaries and the US Presidential Election in November 2016 caused considerable concern and volatility in financial markets.

The initial negative response to the Brexit vote saw a flight to "safe haven" assets but UK equity markets recovered quickly. In fact, post-Brexit weakness of the UK pound may benefit UK companies in a range of sectors where most of their earnings come from operations outside the UK.

US President Donald Trump's proposed assertive expansionary fiscal program policies, such as spending heavily on infrastructure while lowering taxes, could be good for the US economy. But such a stimulus program could see the US Federal Reserve raise interest rates more aggressively than they did in 2016, resulting in a larger US deficit.

Global share markets

Global share market returns varied greatly in 2016, with very modest signs of economic recovery in Europe tempered by heightened concern over regional politics. German and French markets were up 6.9% and 4.9% in the calendar year. The weak Italian economy saw their market fall 10.2% with fresh concerns about political instability following Prime Minister Matteo Renzi's resignation after his plan to reform Italy's constitution was overwhelmingly rejected on 4 December 2016.

Japan's Nikkei 225 Index rose by just 0.4% in the 12 months to 31 December 2016 as the yen rose and investors began to lose faith in both monetary policy and economic reforms. China's share market fell 12.3% over the same period while in contrast, growth in the US economy helped push the US share market up 9.5%.

Australia outperformed most of the world's major share markets, returning 11.8% for 2016. Mining companies delivered better returns to investors in 2016 due to stronger spot prices for bulk commodities in the second half of the year.

Interest rates

The US Federal Reserve raised the official cash rate from 0.5% to 0.75%. It is the first time in a year that the interest rate has been raised, and only the second time since the GFC of 2007-08.

Here in Australia, the RBA sent the cash rate to a historic low of 1.50%, having reduced it by 0.25% in May and by another 0.25% in August 2016.

Interest rates in Europe and Japan remained at or near historic lows.

The Aussie dollar

There was a mixed performance of the Australian dollar against the world's major currencies.

2016 began poorly as concerns the economic slowdown in China would be worse than expected forced the AUD down to around 68.6 US cents. However, our dollar then rose over the year, particularly due to the recovery of iron ore prices. As the year progressed, evidence that China's economy had stabilised benefitted the AUD. Over 2016, the AUD fell 1.20% against the US dollar.

The AUD rose 18% against the UK pound over 2016 - the majority of this rise is attributable to the weakness of the pound following the Brexit vote.

Past performance is not necessary indicative of future performance.

TWUSUPER returns

See the latest returns for TWUSUPER.

2015/16 investment returns

18/08/2016

TWUSUPER has declared its annual investment returns for the financial year to 30 June 2016. Chief Investment Officer Andrew Killen has described the results as very solid despite tough investment markets.

"Investment markets during the year were some of the toughest we’ve seen since the GFC,” said Mr Killen. “Despite this, TWUSUPER’s investment performance has been highly competitive, particularly when compared to a range of well-known industry and retail super funds.”

Investment returns

 
Period to 30 June 2016
Super
members % pa
Retirement (Pension) members % pa
Cash
Plus
Balanced
(MySuper) 
Equity
Plus
Cash
Plus 
Balanced Equity
Plus 
1 year 1.81 3.05 3.13 2.17 3.45 3.59
3 years 2.03 8.16 9.70 2.45 9.13 10.91
5 years 2.71 8.17 9.35 3.20 9.24 10.65
10 years 3.71 5.17 5.16 4.40 5.99 6.05

The figures shown are net of fees, investment expenses and (for super members) taxes. Past performance is not a guarantee of future performance.

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