ANZ Smart Choice Super Investor Update : Member Update Winter 2013
In 2010 and 2011 we saw a flight to safety into defensive assets like cash and government bonds. However, in 2012 money began moving out of defensive assets to growth assets like shares and property. 2013 started strongly for growth, with the US share market hitting record highs. More recently, global share markets broadly retreated over speculation about when the US Federal Reserve may wind down its asset purchasing program and mounting anxiety about the growth outlook in China. The US Federal Reserve has spent trillions of dollars buying US Government bonds and securities under its program of quantitative easing. The aim is to encourage investors to take on risk, in the process stimulating investment and consumer spending to bring unemployment down towards 6%. This strategy has successfully boosted share markets, however US job growth, though improving, has been painfully slow. Recently US Federal Reserve Chairman Ben Bernanke cited improving job numbers, paving the way for future slowing of the easing approach. Investors interpreted this as 'sooner not later', which prompted a sell down of shares. Ongoing speculation regarding the Fed's intentions with their strategy will likely see volatility persist in the short term. Closer examination suggests markets may have overreacted to the Fed Chairman's comments. Importantly, Chairman Bernanke has reiterated that any wind back of their approach is contingent on both a pick-up in growth and a continuation of the jobs recovery. This will take time. Moreover, as central banks are well aware, the prospects for cyclical recovery still hinge on keeping interest rates in the major developed economies close to zero. This is underscored by the Federal Reserve's continued commitment to hold US short term rates near zero until the middle of 2015. Meanwhile it could be some years yet before the assets purchased as part of the program are sold. In short, the Fed has shown no inclination to remove the significant stimulus it has already implemented over the past few years. Elsewhere, the European Central Bank has stepped in to push down Government bond yields in the region. And in Japan the central bank joined the 'asset purchasing' game in an effort to end the period of falling prices which has held back demand for the past two decades. For the world economy (and Australia in particular) the wild card could increasingly prove to be China. The past year has illustrated that Chinese policy makers now face a starker trade-off between growth and asset price bubbles than was the case previously. 11 Is the risk pendulum moving?
Member Update Autumn 2013
Member Update Spring 2013