Market update to 30 September 2019

Few of us have the time or the desire to keep a close eye on the global financial markets on a day to day basis. But that’s what our Biblical Investments team does, and they genuinely enjoy doing so!  To bring you up to speed in a matter of minutes, our investment professionals have put together this quarterly market update, which outlines some key updates from the quarter ending September 2019.

Overview

Markets have been anxious by the prospect of a global recession, a sustained slowdown in China and poor Eurozone growth.  At the same time, central banks around the world have been continuing to act to make interest-bearing assets unattractive, leading to the continued rise in prices of risky assets such as equities.  They are likely to continue this action, increasing the likelihood that risk assets continue to perform well, and reducing the immediate risk of recession (although perhaps increasing it in the medium term). We expect global growth to remain resilient on the back of steady US growth, and signs that sustained monetary and fiscal stimuli across the globe are gaining traction.

Macro Economics

During the quarter, the Reserve Bank of Australia reduced the cash rate by 25 basis points to 0.75%. The Australian economy grew by 0.5% in the June quarter but year-end growth had slowed to 1.4% p.a. There was a pick-up in GDP growth over the first half of 2019 compared with the second half of 2018.

Globally, the Federal Reserve in the US cut interest rates in July and September in an attempt to prolong the economic expansion in the face of a slowdown in the pace of growth and hiring. China’s economy continued to slow and struggled to sustain growth at the 6% level. In Europe, the European Central Bank responded to the weaker economic outlook by cutting interest rates further into negative territory. The Brexit saga continued to drag on, with parliament approving legislation for an early election on 13th December to attempt to break the deadlock. In Japan, the consumption tax hike has just come into place, posing a risk to an economy that is already feeling the effects of the global slowdown in manufacturing.

There are plenty of risks to see for those looking for reasons to be pessimistic.  The potential for a damaging trade war, continued Brexit stalemate following yet another UK election, early recessionary indicators in the US and house price weakness in Australia are just a few.  But it’s also possible that markets and economies could keep pushing forward for a few years.

Market Performance

Global equity markets rose 4.8% over the quarter. Developed markets had a strong run while emerging market equities were the bottom of the league table.   Helped by successive cuts by central banks around the world and concerns about the outlook for economic growth, government bonds posted a decent quarter of returns.   Over the quarter, the Australian Dollar dropped 3.9% against most of the major developed market on a reflection of weaker growth prospects.

What Does This Mean for Your Super?

Against this backdrop, Christian Super remains cautiously positioned in a way to protect members in the event of significant downside. We believe that we are late in the investment cycle and nearing late economic cycle.  We want to invest to receive the gains that are still present while simultaneously minimising the risk of significant loss in the event of a simultaneous economic and market downturn.

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