A divorce from your husband or wife, or a separation from your de facto, could mean a division of your assets and debts, whether they’re held separately or together, and superannuation is no exception.

Another thing to note is even if one of you hasn’t contributed to super for many years, that person could still be entitled to a percentage of the other’s super.

We explain some of the key points below. And, if you’re a de facto couple living in Western Australia, remember different rules may apply as you’re not subject to the same superannuation splitting laws.

How is super divided?

A superannuation agreement can be put in place before, during or after your relationship, as part of a broader ‘binding financial agreement’. This agreement can specify how super is to be split upon separation or divorce.

If you and your partner don’t have a binding financial agreement in place already but have agreed how you would like super to be split, an Application for Consent Orders can be filed in court without your attendance to formalise the arrangement you’ve both come to.

If you can’t come to an arrangement together, you might instead look to obtain Financial Orders, under which a court hearing will determine how super is to be split between the two of you.

Because there are rules around when super can be accessed (for instance, you may need to have retired from the workforce), remember that splitting super won’t necessarily result in an immediate cash payout, as super is treated differently to other assets and debts.

What does the process involve?

You may want or need to get information regarding the value of the superannuation that is to be split. And, you’ll need to provide various forms to the super fund to get this, which you can locate in the Superannuation Information Kit on the Federal Circuit Court of Australia website (www.federalcircuitcourt.gov.au).

You can do this if it’s your super fund, or your ex-partner’s super fund, but keep in mind fees for providing this information may be payable by the person who has requested the information. Depending on your circumstances, you may also wish to establish a ‘flagging agreement’ whereby the super fund is prevented from paying out any super until the flag is lifted, which may also result in a fee. Once the super splitting order is made, whether by consent or after a court hearing, you’ll also need to provide a copy of the order to the super fund for it to be effective.

Splitting super – what to keep in mind

Some people prefer to avoid lengthy disputes by choosing to forgo some of their entitlements. The trouble with doing this is that it may have significant financial consequences down the track, so it’s important to be armed with all the information you can to ensure the decisions you make are sound.

Working out what you’re entitled to can be complicated, which is why it’s important to seek legal advice, and regarding other financial matters, you may wish to contact us.

Source: AMP

It’s tempting not to think too much about your super when retirement is still a long way off. After all, it’s growing just fine by itself … right? But the reality is, if you don’t take control now, you might be left with less than what you need when it’s time to put it to use.

Here’s how to be the boss of your super in three simple steps.

Step one: Know what you’re entitled to

If you’re working full-time or part-time for an employer, they generally have to make regular Super Guarantee (SG) payments into your super account. But there are some exceptions, like if you’re:

• earning less than $450 a month
• under 18 and working 30 hours or less a week
• doing domestic or private work for 30 hours or less in a week (for instance, if you’re a part-time nanny)
• an overseas worker temporarily working in Australia and you’re covered by a bilateral superannuation agreement
• a non-resident working overseas but paid by an Australian employer
• a Reserve Defence Force employee (applicable to some payments only).

SG contributions are calculated as 9.5% of your Ordinary Time Earnings (OTE). This includes loadings, commissions, allowances and most bonuses, but usually doesn’t include overtime pay. Your employer also has to keep making SG payments even when you’re on sick leave, annual leave or long-service leave – but not if you take time off for paid parental leave.

Step two: Check that your super is being paid

When you start working for a new employer, they need to give you a Superannuation (super) standard choice form. This lets your employer know which super fund to pay your SG contributions into. All you have to do is provide your fund details and account number.

By law, your employer has to start paying SG contributions into your chosen account on a quarterly basis – and they must start paying any amounts that are due within two months of receiving your completed standard choice form. If you think your employer isn’t making these payments – or they’re paying you the wrong amount – here’s what you can do:

1. Check your super statement to find out how much your employer has been paying.
2. Speak directly to your employer about how and when your payments are scheduled.
3. If you can’t resolve the issue, lodge an enquiry with the Australian Taxation Office and they’ll take steps to investigate.

Step three: Boost your super savings

Employer SG contributions play a vital role in building up your super savings throughout your working life. But they’re not the only way to grow your nest egg.

You may be able to set up a before-tax contribution from your salary, known as a salary sacrifice arrangement, with your employer. This means authorising them to take out a fixed amount or percentage of your before-tax income from every pay, which they then deposit straight into your super. But first, you should speak to your employer about how this arrangement would work for your employment situation.

Alternatively, you can use your own money to make voluntary contributions. In this case, you may be entitled to claim an income tax deduction on your contributions.

An advantage of salary sacrificing or making personal tax-deductible contributions is that your contributions will be taxed at just 15% in most cases, instead of your usual marginal income tax rate. However, it’s important to remember that the combined total of your SG payments, salary sacrificed amounts and your personal tax-deductible contributions can’t exceed $25,000 in a financial year or extra tax will apply.

What if you’re self-employed? You don’t have to pay yourself super, but it’s still a valuable way to save for your retirement.

Source: Colonial First State

It’s no secret that saving for a house is tough. Raising the money for a deposit can seem to take forever, even if you’re consistent with your savings plan. Want some good news? There’s a new way to save, and it’s called the Government’s new First Home Super Saver Scheme (FHSSS).

It may not be the snappiest acronym, but the FHSSS can help you save for a home deposit through your super. To help you get your head around the FHSSS, and how to make it work for you, we’ve put together some handy info below.

What is the FHSSS?

The FHSSS is a scheme created by the Australian Government to help first home buyers save for a home deposit. Through this scheme, you can make voluntary super contributions (up to the annual contribution limits), and withdraw them from your super account later to buy your first home.

How do contributions work?

You don’t need to tell your super fund that you’re contributing to the FHSSS – all voluntary contributions you make on, or after, 1 July 2017 count towards the scheme (that’s anything you deposit into your super on top of the compulsory contributions your employer makes and normal super contribution caps still apply). Just note that contributions to a defined benefit fund or constitutionally protected fund are not eligible.

What happens when you’re ready to buy?

Once you’re ready to buy, you apply to the Australian Taxation Office (ATO) to withdraw the amount to put towards your home loan. You can withdraw up to a maximum of $15,000 from any one financial year and $30,000 in total across all years of the eligible contributions you make – this includes a deemed earnings rate on your contributions calculated by the ATO (rather than the actual earnings). The ATO will let you know the maximum amount that can be released, the associated earnings and the tax that will be withheld. You can only request one release from the ATO.

Then it’s time to enter the property market

You have 12 months to sign the contract to purchase or build a home after you make your FHSSS withdraw, and you’ll need to occupy it for at least six months of the first year after the purchase (after it is practicable to move). If not, you might have to apply for an extension from the ATO, recontribute the amount withdrawn back to your super or you may be liable for further tax.

Why is it worth doing?

On the surface, the FHSSS might sound a lot like a glorified savings account – and in a way, it kind of is. The main benefit, though, is that you might end up saving money faster by paying less tax on the money contributed to your super versus a regular savings account.

That’s because super contributions, like salary sacrifice and personal deductible contributions, are taxed at the fund’s rate of 15%, rather than at your marginal tax rate. Not only that, the contributions you make could achieve earnings through the investments your super fund offers.

Who can tap into the FHSSS?

There are a few boxes you have to tick, such as being 18 years+ and never having owned property in Australia. There are also some rules around the type of property you can buy through the FHSSS (it can’t be a houseboat, motor home or vacant block). You can also only use the benefit once.

Ultimately, it’s up to the ATO to decide what you can withdraw and when. To find out more visit the ATO website (www.ato.gov.au) or contact us.

Source: ING

The old saying “penny wise, pound foolish” couldn’t ring truer than in today’s throw-away world of overconsumption and excessive production of disposable items.

Did you know that many manufacturers have been using techniques to deliberately reduce the life of a product to increase its replacement rate and sell you the same thing again? It’s called planned obsolescence.

Some products are not built to last. Others are specifically designed to make them hard to repair. And some just go out of fashion. Apple, for example, has been accused of using proprietary five-point security screws in some iPhones, making them harder to repair which may have encouraged some customers to upgrade their gadgets sooner than necessary. And, the tech giant has admitted that it artificially slows down iPhones with older batteries.

Then there’s the clothing industry. The whole idea is that we keep buying new items to keep up with the latest trends. But fashion changes quickly and last year’s hot look may suddenly look dated. Clothes can also be poorly made which means they might not last long.

According to the ABC, each Australian buys an average of 27kg of new clothing and textiles every year. Yet, research found that three-quarters of them had thrown clothes away over the past year and nearly a quarter had thrown away an item after wearing it once.

Worryingly, around 85 per cent of these items end up in landfill. And clothing made from polyester, for example, can take up to 200 years to break down.

Harmful to the earth and your hip pocket

Our buying habits, however, are not only hurting the environment, they are also an example of a poor use of our hard-earned cash. It’s like pouring money down the drain or into the garbage bin.

Things are changing though. In August 2015, France became the first country in the world to define and outlaw the practice of planned obsolescence. And thanks to websites like buymeonce.com, and books such as Tara Button’s books A Life Less Throwaway and Australian Clare Press’s Wardrobe Crisis, many consumers are changing their attitudes to spending.

By making smart buying decisions now, they are finding that they are saving money for more important things in the future, like a home or retirement, and are helping the planet at the same time. As another wise saying goes, “waste not, want not”.

Here are some of the ways you can do the same:

Buy quality

An item may appear cheap now, but it’s not cheap over the long-term if you are going to have to keep replacing it, maintaining it or repairing it. By doing that, you are not only losing money and your valuable time, but also opening yourself up to future frustration. It’s also worth spending a little more on some items – such as household appliances – if they are more energy efficient and can save you on energy cost and water bills over the long-term.

Go classic

Instead of following every fashion trend, buy your clothes for the long-term. Think carefully about each purchase and opt for quality items that are well-made and designed to last. Have classic basics in the colours that suit you, rather than those in fashion, and which can be worn on many occasions.

Go pre-loved

Buying second-hand is no longer uncool, thanks to organisations like the US-based The RealReal and French disruptor Vestiaire Collective. You could also find fantastic items from op shops run by Vinnies, the Salvos, the Red Cross, LifeLine and many other organisations across Australia. Not only are you saving money, but you are also supporting valuable causes.

Get mending

Thanks to people like British designer Stella McCartney and the growth in Repair Cafes, mending stuff is back in vogue and not just something great-granny did. Not only is it relaxing and satisfying to fix something, it can also give us a deeper connection to it. In fact, the Japanese have an ethos known as kintsugi, where items are fixed with gold joinery as a way of appreciating the beauty of broken things that have been mended. You don’t need to mend your broken items with gold, but you can wear your mends as a badge of honour, by giving your clothes their own unique look and a new lease on life.

Get quality advice

Just like paying more for quality items that last longer, it pays to get quality financial advice on life’s important decisions, like your savings, investments and estate planning. Mistakes made due to lack of advice or getting poor quality advice could cost you a lot more over the long-term.

Source: FPA Money and Life

Australians aged 65 and over who are downsizing for retirement can now contribute the proceeds from the sale of their main residence (up to $300,000) into super.

We take a look at what this could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Super benefits for downsizers

Usually, people aged 65 to 74 need to satisfy a work test to make voluntary super contributions, while people aged 75 and over are generally unable to contribute to their super.

However, that changed on 1 July 2018, with those aged 65 and over now able to make a non-concessional contribution to their super of up to $300,000 using the proceeds from the sale of their main residence – regardless of their work status, superannuation balance, or contribution history.

For couples, both spouses are able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of your main residence that are contributed into super as part of this initiative can be made in addition to any other before-tax or after-tax contributions you’re eligible to make. The government says the aim is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger growing families.

To qualify:

• The contracts for sale must be exchanged on or after 1 July 2018
• The property that’s sold needs to have been your (or your spouse’s) main place of residence at some point in time
• You need to have owned the home for at least 10 years
• The property that’s sold must be in Australia and excludes caravans, mobile homes and houseboats.

‘Downsizing’ contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.

Things to note

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there may be means testing implications as a result of downsizing, which need to be considered.

Meanwhile, additional rules may apply to your situation, so make sure you do your research before making any decisions.

Source: AMP

As the novelist C. S. Lewis once observed, “You are never too old to set another goal or to dream a new dream.”

Retirement should be the start of a new chapter in your life – perhaps the most exciting of all. The big question, of course, is how you pay for it without a regular pay cheque. A simple way to think about retirement income is by splitting your needs into two parts:

Regular income – the money you will need each month to pay regular living expenses, like your housing, food and health care costs.

Discretionary income – your pocket money to spend on the good things in life, like travel, restaurants and trips to the theatre. These funds also cover life’s nasty surprises, like car repairs, blocked pipes and leaking roofs (hopefully not at the same time).

Let’s use this framework to look at the retirement income options you have.

Regular income requirements

These are the sorts of expenses you are already paying every month – unfortunately most of them will continue when you retire. Council rates, utility bills, groceries, health care and phone bills all fit into this category. When you’re working you cover these sorts of expenses with your employment income, but what happens when you retire? The answer lies in generating a regular retirement income stream. Here are some options to consider:

Account-based Pensions

Once eligible, you can transfer all or part of your super to an account-based pension and choose how much you receive as regular income payments. There are compelling tax benefits because investment earnings on your assets supporting this income stay within the super system. This means they are tax free, and for most people aged 60 or above, the income payments you receive are also free of tax.

Annuities

An annuity is a product you can buy from an insurance company using your super or other savings. Annuities give you a set income for a defined period or for the rest of your life, depending on the product you choose. If you use your super to buy an annuity, income payments receive the same tax treatment as an account-based pension. Another advantage is reliability – you receive a guaranteed payment regardless of market performance or interest rate changes. On the downside, you have less control because you cannot choose where your money is invested, and you don’t have the flexibility to withdraw if you need extra cash.

Part-time work

Many of our clients love their work and choose to reduce their hours, or work part-time, in the early stages of retirement. Continuing work helps you to stay active mentally and continue to socialise with colleagues – but there are also financial advantages. You will receive income payments every month – money you can rely on for regular expenses. When you are still earning a salary you can continue to contribute to your super, rather than having to draw down on the balance. This could make a big difference to the value of your nest egg when you eventually retire.

The pocket money you deserve

So you’ve taken care of life’s essential expenses with a retirement (or semi-retirement) income stream. What about extra money to treat yourself to the finer things in life?  The secret to retirement pocket money is quick access to cash. The financial term for this is liquidity – cash is the most liquid asset while investments like real estate are considered illiquid, as it is very hard to sell just one room of a house.

Term deposits

With a term deposit, your money is invested for a fixed period and you receive an agreed rate of interest for the term of your investment. It’s a popular way to earn money for life’s pleasures – and emergencies – because the cash you receive is easy to access, it’s liquid. Another benefit is the safety of a term deposit because your original investment is returned at the end of the term.

Dividend investing

When you buy shares in a company you are entitled to a share in the company’s profits or earnings. Companies pay a dividend to shareholders as a way of sharing profits – usually twice a year. You can use these cash dividends as pocket money for discretionary spending in retirement. By holding the shares for a length of time, the value of your underlying investment is also likely to grow.

The potential for better returns through share investing comes with additional risk. It is important to spread risk by diversifying your investments – across industries and also beyond our borders to global markets.

Bringing it all together

There is no shortage of options for your retirement income – the secret is in combining the best of them in a tax effective way based on your individual circumstances. We strongly recommend you start thinking about your retirement income now and seek financial advice early. You’ve spent your life building your nest egg – don’t let it fall from the tree.

Source: Perpetual

In the later stages of life, many seniors want to stay independent for as long as possible, but there usually comes a time when they need more support. So how can you do more for your parents to keep them safe and comfortable, without taking away their sense of independence and dignity? Here are some practical tips to guide you through the process and minimise stress for everyone involved:

Talk together as a family

Instead of waiting until one, or both, of your parents are facing a crisis with their health and/or finances, have a family meeting to talk about what they would like to happen. While it may be a tricky subject to tackle and one the whole family can feel quite emotional about, being prepared to care for your parents as they age can make it a lot less stressful when there’s a change in circumstances. Even if your parents are in the best of health now, that situation can change overnight, quite literally, if they were to have a stroke or a fall.

The question of care

How your parents want to live out their days and what they can afford are really the two important questions to address. Answering the following questions can help you determine the best way forward for your parents as they become less capable of looking after themselves:

Do you plan to stay at home as you age?

The answer to this question isn’t always yes, but many people feel safe and comfortable in a home that’s familiar. The idea of moving somewhere new later in life can be pretty intimidating so wanting to stay put is a natural and very popular choice for seniors. In the 2018/19 budget, $1.6 billion was allocated to providing 14,000 additional high‑level home care packages by 2021/22. So if your parents are set on staying in their home, talk to them about the possibility of seeking the extra help they might need, from a government subsidised service, family members, or both.

How well are you coping at home?

Some parents may say they don’t need any help with day-to-day living at home. If this is the case, you may need to do some sleuthing and check if they’re showing any signs of actually needing assistance. Seeing things that are out of character – like a messy house or garden, not cooking or shopping as often, wearing dirty clothes – could be warnings that they’re struggling to do things they normally would.

Do you feel connected to your family, friends and community?

If it puts your parents at risk of becoming more isolated, staying at home may not be the perfect solution. You may already be well aware of how active or quiet they are socially, but it’s still worth asking how connected and safe they feel in their community. Are they still comfortable walking, driving or taking public transport to enjoy life outside their home? Are there people nearby they can call on if they have an emergency or just need someone to talk to?

What can family do to make things easier at home?

Giving Mum and Dad the support they need to continue getting out and about is just one of the ways you can care for them as they age. It can be the case that a little extra help from family, or a few modifications like handrails in the bathroom, are all that’s needed to keep parents safe and happy in their home.

Have you looked at other options – retirement village or residential aged care?

If your parents are looking to downsize, spend less time looking after their home and more time with like-minded people, moving to a retirement village could work well for them. But when parents need a higher level of medical care, support or supervision, they may need to plan for transition into residential aged care. The earlier you can start this process, the better the outcomes are likely to be for your parent or parents, particularly if they’re anxious or fearful about making the move. Start research and planning sooner and you’re likely to have a wider range of options to choose from.

Wealth and wellbeing

No matter how strong your relationship is with family, things can get a bit fraught when it comes to finances. An honest conversation about your parent’s financial position is just as important as establishing what their wishes are.

Source: FPA Money & Life

Market and Economic overview

Australia

• The Reserve Bank of Australia (RBA) again left interest rates on hold at 1.50% in July, extending the record period where policy has been unchanged.
• The chances of official borrowing costs being amended in the foreseeable future remain low, particularly with inflation only approaching the bottom of the RBA’s 2-3% target band. Annual Core CPI was reported as 1.9% in the June quarter, although higher petrol prices helped lift headline inflation to 2.1%.
• Employment trends remain encouraging, with more than 50,000 jobs created in June. The official unemployment rate remained steady at 5.4%, however, and there is currently insufficient wage pressure to concern policy makers.

United States

• Preliminary US GDP statistics for the June quarter were released and showed that the economy grew at an annual pace of 4.1% in the three months ending 30 June 2018.
• This encouraging statistic followed a slightly weaker reading in the March quarter. Viewed together the two releases confirm the economy performed well in the first half of 2018, growing at a pace that was broadly in line with consensus expectations.
• The improved performance in the June quarter was supported by solid consumer spending and higher soybean exports. Business spending slowed during the period.
• The value of exports rose 9.3% from a year earlier, compared with a 3.6% increase in the previous quarter. Imports moderated over the same period, resulting in a strong influence from trade overall. In fact, the contribution of trade to GDP growth in the June quarter was the highest since 2013.
• Headline CPI again edged higher, to 2.9%. Ongoing pricing pressures in the economy are supporting the case for official interest rates moving back towards neutral.
• Housing starts data released in mid-month was particularly weak, with June starts 12.3% below the May level. The residential construction market may be starting to feel the impacts of higher interest rates.
• US interest rates were left unchanged at 2.00% in July, although further hikes are anticipated before the end of 2018.

Europe

• Economic activity in the June quarter did not rebound as many economists had anticipated.
• In fact, GDP growth in the Euro area was just 0.3% in the period. This was below consensus expectations and dragged the annual pace of growth down to 2.1%, from 2.5% previously.
• In spite of subdued economic conditions, some inflationary pressures appear to be emerging; the latest estimates suggest headline CPI in Europe has risen above 2.0%.
• UK inflation data for June came in below expectations, which arguably should reduce the likelihood of an increase in official interest rates by the Bank of England (BoE).
• However, previously hawkish comments from BoE officials have seen the market retain a 91% chance of a hike in early August.
• No meaningful progress has been made recently in the prolonged ‘Brexit’ process and the UK’s proposed withdrawal from the European Union.

New Zealand

• Inflation picked up to 1.5% yoy in the June quarter, driven by higher food and transport prices. The increase was slightly short of consensus expectations, however, and is unlikely to be a concern for policy makers. Interest rates remain at 1.75%.
• In spite of loose monetary policy, business confidence fell to a 10-year low in July. Inflationary forces could lose momentum if subdued confidence levels result in investment plans being delayed or cancelled.

Asia

• The Chinese economy grew by 1.8% in the June quarter, compared to a 1.4% expansion in the first three months of the year. The economy advanced 6.7% in annual terms, which was in line with market expectations.
• For 2018 as a whole, the Chinese government is targeting economic growth of around 6.5%.
• During the month officials announced that China is taking steps to contain debt and leverage levels in the economy in order to reduce financial risks. Rising defaults among Chinese corporate bond issuers earlier in 2018 had become a concern for investors. This news was well received by investors – the stock market stabilised in July, having lost more than 20% of its value between mid-January and the end of June.
• Elsewhere in Asia, the Bank of Japan lowered inflation forecasts out to 2020, suggesting monetary policy settings will not be tightened and that bond yields will remain anchored at low levels.
• With inflation running at just 0.7% yoy, Japanese interest rates remain at zero and a Quantitative Easing program is still in place.
• GDP data for the June quarter is due on 9 August. A contraction would see the economy enter into a technical recession, following a negative growth reading in the March quarter.

Australian dollar

At the end of July, the Australian dollar bought 0.742 US dollars; an exchange rate that was almost unchanged from the end of June.

Commodities

Most commodity prices finished the July lower as the US announced a new set of tariffs on Chinese goods. China is expected to reciprocate by imposing further tariffs of its own on goods imported from the US. Concerns also mounted over the outlook for global growth, which has been driving demand for commodities in recent months.

Oil (-6.5%) took a breather after posting strong gains in recent months and reaching multi-year highs. Thermal coal (-11.3%) also retreated as deficit concerns subsided.  Precious metals were mostly lower, with gold (-2.3%), silver (3.6%), palladium (-2.6%), and platinum (-2.4%) all finishing in negative territory.

Most industrial metals lost ground on concerns around global economic growth, including lead (11.0%), zinc (7.9%), copper (-5.2%) and aluminium (-4.3%). Iron ore (+0.7%) edged higher as the drawdown of Chinese steel inventory continued, given stable demand and supply disruptions from China’s environmental crackdown.

Australian equities

After some volatility, the S&P/ASX 200 Index finished July up 1.4%. Investors focused on improving domestic economic data, as well as the upcoming ‘earnings season’.

Telecoms stocks made a noteworthy comeback in July, rising 7.9% reflecting strong recoveries in TPG Telecom and Telstra.  Technology stocks struggled following poor results from US-listed Facebook. Utilities also underperformed after the ACCC proposed wholesale and retail electricity price reforms.

Small caps underperformed, with the S&P/ASX Small Ordinaries Accumulation Index declining -1.0%. Toilet tissue and hygiene products supplier, Asaleo Care lost nearly half of its value after releasing disappointing preliminary half year results and lowering full year earnings guidance.

Listed property

The S&P/ASX 200 A-REIT Index returned 1.0% in July. Diversified A-REITs (3.4%) was the best performing sub-sector, while Industrial A-REITs (0.1%) was the weakest.

M&A activity remained a key driver, with Blackstone’s $3.1 billion takeover bid for Investa Office Fund being labelled unfair but reasonable by independent expert KPMG. Elsewhere, Hometown lodged a bid for Gateway Lifestyle, with Brookfield reported to have walked away from its proposed transaction.

The strongest performers were Mirvac (5.1%), Stockland (4.5%), and National Storage REIT (4.0%). Mirvac benefited from securing Suncorp as a major tenant at its proposed office development in Brisbane.

Underperformers included Scentre Group (-3.2%), Charter Hall Long WALE REIT (-3.2%), and Shopping Centres Australasia (-2.0%). Scentre shares fell following earnings downgrades from multiple brokers, despite expectations that FY18 earnings guidance would be reaffirmed following the Group’s recent 50% acquisition of Eastgardens, a shopping centre in Sydney.

Globally, major property market returns underperformed broader equity markets. The FTSE EPRA/NAREIT Developed Index returned 2.5% in USD terms. In local currency terms, Hong Kong (2.8%) was the best performing market, while the UK (-0.6%) was the worst.

Global equities

Stock markets fared well in July, with positive economic news and a bright start to the US earnings season supporting sentiment. All major markets registered positive returns. US technology earnings unsettled investors in the final days of the month, however, dampening returns from the MSCI World Index to 2.5% in Australian dollar terms.

The German DAX finished the month up 4.1%, as the US and EU appeared to reach a trade truce towards month-end. Having been hit hard over the potential US trade war, rebounds in carmakers Volkswagen and BMW helped the German bourse to outperform other major equity markets worldwide. The Japanese Nikkei rose 1.4% in local currency terms, but was the worst performer among major markets. A number of large listed technology stocks were caught in the Facebook-inspired global sector downturn.

Emerging markets added 1.8% in local currency terms, supported by a sharp rebound in Brazilian stocks. The MSCI Brazil jumped 9.2% in local currency terms, partly reflecting easing trade tensions.

Global and Australian Fixed Interest

News flow affecting global bond markets moderated in July, with few major themes influencing market sentiment. Volatility was reasonably low, certainly when compared to the heightened level of yield fluctuation we’ve seen in recent months.

The rise in yields in the second half of July was mostly related to increased attention on the Bank of Japan (BoJ) after officials indicated they were considering a change in policy settings. If Japanese Government Bond yields were to rise, local investors invested in overseas bond markets might liquidate some of those investments and reallocate the proceeds into JGBs.

US Treasury yields are expected to continue to test their recent highs as the Federal Funds rate is increased. This is likely to support higher yields in other regions, particularly those where monetary policy is also being tightened. Negative investor sentiment associated with the withdrawal of liquidity from central banks remains a key risk to this scenario playing out as expected.

 Global credit

Credit performed well in July, providing some long-awaited good news for investors. Investment Grade spreads narrowed 12 bps, closing at 1.13%. This followed five months of persistent weakness, where spreads had widened by around 40 bps.

Another solid set of quarterly earnings announcements from listed US companies supported sentiment towards issuers in most regions and industry sectors. Disappointing earnings in the tech sector did not have a significant influence on the market as a whole, as credit issuance is limited in this area of the market.

There was particular respite for Asian issuers, which have underperformed recently due to trade concerns. Chinese authorities appear to be easing back on measures that had been implemented to contain credit growth.

The general optimism and healthy appetite for risk extended into the High Yield market too, with yields closing 24 bps lower, at 2.95%. Following the pull-back in July, yields in the High Yield sector are close to their average level over the past 12 months.

Source: Colonial First State.