As the old saying goes, there are only two things certain in life: death and taxes. Unfortunately, most of us spend too much time worrying over the latter and not enough discussing the former, uncomfortable though it may be.

But while no one enjoys contemplating the end of their life, planning for your death is just as important as managing your finances, if not more so.

It’s difficult enough for families to cope with the loss of a loved one, but the added burden of dealing with the remaining estate can make an emotional time even more traumatic – which is why drawing up a will is essential, regardless of your age and the state of your finances. Here’s what you need to know.

What happens if you don’t have a will?

If you pass away without a will, the law will determine who can be appointed to administer your estate and how it will be distributed once debts are paid out.  Administrators have the right to make allowances for persons who might have been left out, which could result in a smaller share being provided to those you love the most. Similarly, others may receive more than you would have otherwise wanted.

If you do have a will

Where is it?

It’s important that your original documents are stored somewhere that’s both safe and accessible. Most solicitors will store your will for you and provide you with a certified copy, which should ideally be safely filed both digitally and in hard copy.

Executors and Powers of Attorney

An executor is the person appointed to administer the estate according to your wishes, and is an essential part of making a will. An executor may be required to sell assets, invest money, complete tax returns and pay debts. Your executor should be someone responsible and capable of undertaking such an important role, especially in complicated cases where the appointment could be long term.

A Power of Attorney is not essential and is appointed in a separate document to your will, as this person’s duties are only relevant during your living years. A Power of Attorney is authorised to act on your behalf in financial or health matters, if you are otherwise unable to do so.

What happens after a death?

Your executor will need to apply for a Grant of Probate in order to begin administering your estate in accordance with the will. An executor is entitled to obtain legal and accounting advice to assist them throughout the application process and dealing with any tax implications for the estate.

Accessing the will

It is crucial that your executor knows where and how to access your will. It’s a good idea to provide your executor with a copy of your will which will include the contact details of the solicitor storing it.

What about super?

Superannuation is usually not included in the distribution under a will, but rather the superannuation legislation and requirements of individual funds dictate how it will be distributed. Special clauses can be included if you wish to bring superannuation into the will but it’s a good idea to seek financial advice first to ensure there are no tax implications.

Disagreements

If there is a disagreement over the will which can’t be sorted out between the parties, then legal representation will be required. The best way to reduce the chances of a disagreement is to ensure your will is carefully drafted and regularly reviewed and updated to reflect your current circumstances.

Whether you’re young and single or have children to consider, creating a will not only ensures your estate is distributed according to your wishes, it drastically reduces the stress and trauma for the family you leave behind.

Without a will, there’s no guarantee your loved ones – and your affairs – will be taken care of in the manner of your own choosing.

Source: Macquarie Group Limited

You’ve undoubtedly heard that Australians are living longer. The most recent Intergenerational Report for instance, projected that the number of Australians aged 65 and over would more than double by 2055, compared with 2015.

Keeping an older generation fit and healthy requires significant investment in certain areas such as healthcare and technology. Having some exposure in your portfolio to stocks tapped into this sector and their healthcare counterparts, may therefore make sense.

Investing in the healthcare sector

Australia’s ageing population will potentially provide tailwinds for decades to come, boosting the demand for drugs, surgeries, medical devices, private hospitals, medical centres and aged-care facilities, as well as services such as nursing, pathology and radiology.

It is not just Australia though. Globally, healthcare spending will grow at 4.1 per cent a year between 2017 and 2021. This indicates that healthcare spend may grow faster than the global economy, as the world population expands and medical treatments increase.

Investment options: the ageing population trend

Global healthcare indexes

One way to gain exposure to the healthcare industry is via exchange-traded funds (ETFs). Several ETF issuers have created vehicles that track global healthcare indices, giving investors access to the world’s largest listed pharmaceutical companies, medical device makers and healthcare stocks.

Be aware, however, that when investing in global markets, you may wish to consider risks such as currency risk as the Australian Dollar appreciates/depreciates against the currency in which the investment is denominated.

Australian Securities Exchange (ASX)

Alternatively, you can choose from a wide variety of local stocks exposed to healthcare. The ASX hosts Australia’s global healthcare stocks including those developing medical devices for sleeping and hearing as well as plasma based therapies. You can also get access to private hospital operators in Australia, some of the biggest in the world.

Other major domestic stocks include private hospital and medical centre operators as well as pathology, medical diagnostics, and pharmacy networks.

In the “wellness” industry, there’s also listed companies selling vitamins, bioceuticals (natural products for certain conditions), health foods, nutritional supplements and probiotics.

Possible opportunities in medical research and aged-care

Biotech – medical research

Australian medical research continues to shape the health and wellbeing of our nation, and has also proven to deliver return on investment for the Australian economy. Investing in Australian biotechnology companies however, may present a level of risk and is generally a longer-term investment proposition. This is because the treatments must pass a number of stages of clinical trials in order to reach federal approval.

Aged-care

The aged-care industry is also one that should benefit from the ageing population and rising spending, and it is well-represented on the stock exchange. However, the stocks have suffered from recent negative publicity concerning care practices, culminating in the announcement in September 2018 of a Royal Commission into the sector.

Modern medicine

The other part of the profound demographic trend of an ageing population is that with advances in modern medicine, many older Australians are living healthier lives. According to the Australian Institute of Health and Welfare (AIHW), in general, Australians are not only living longer, they are enjoying more years in good health.

Stocks tapped into super

Finally, with $2.7 trillion now held in the superannuation system, the ageing population will increase outflows from this asset pool, as there will be a flow of money funding these years in retirement – although whether every retiree is able to fund a lifestyle to match their expectations cannot be guaranteed.

The point is that the nation will see a growing number of older Australians, healthy enough to enjoy their retirement and who may be prepared or are able to spend money enjoying life.

As a result, this may provide opportunities for a number of stocks tapped into the sector – less obviously than their healthcare counterparts.

Bottom line: for investors, having some exposure in your portfolio to the healthcare sector and its counterparts, may make sense given our increasing ageing population.

Source: BT

According to the Australian Securities and Investment Commission (ASIC), Australians owe a total of $45 billion in credit card debt, and about half of us continue to make low repayments and remain in debt month after month.[1]

Did you know that a $2,000 credit card debt would take 17 years to repay if you only pay the minimum repayment?[2]

Having debts that are out of control can be stressful and overwhelming. If you find yourself in this situation it can be reassuring to know that there are some steps you can take to escape the debt trap.

How to reduce credit card debt

Although credit cards are an easy and convenient way of paying for goods and services they can be risky and expensive. It can be tempting to use credit cards for impulse purchases or to buy things you may have otherwise avoided if you had to save in advance. If you find yourself struggling with credit card debt, here are some strategies may help in paying it down.

Pay off a small balance to get started. It can feel quite rewarding to clear a small debt and this may provide you with further encouragement to clear other debts.

Prioritise high interest rate debt first. If you have several credit cards pay down the card with the highest interest rate first, while making the minimum monthly repayment amount on the others. This will limit the overall impact of compound interest and reduce the growth of the debt. Once you have paid off the card with highest interest rate, move on to the card with the next highest interest rate, adding the cash repayment from the first and so on.

Pay more than the minimum monthly repayment. If you can’t afford to pay off your entire monthly credit card balance, try paying more than the minimum monthly repayment amount. This will help to reduce the amount of interest charged.

Consolidate high interest debt onto a low interest rate card. Many credit card providers offer a 12-month interest-free period when you transfer an existing credit card debt. Take advantage of this interest-free period to focus on paying down the outstanding balance, although be wary of the interest rate charges that apply after the interest-free period expires.

Set up an automatic payment. Setting up an automatic payment can help you to avoid late payment penalties.

If you find that you are struggling to stay on top of your credit card repayments there are other options that may assist. One option to consider is debt consolidation.

Debt Consolidation

The option of rolling your existing credit card debt into a single loan can be an effective way to get your credit card debt under control.

There are however a number of things that need to be considered before doing so.  Debt consolidation often involves cancelling your credit cards and moving the credit card debt into a low-interest debt consolidation loan. The interest rate on the new loan needs to be lower than the credit card interest rate otherwise you aren’t going to make any progress reducing the outstanding debt.

The aim here is to focus on eliminating your debt and refraining from using credit cards in the future. However make sure you check the terms and conditions of the loan carefully. For example, you need to be able to service the loan, so the new repayments need to be affordable.

As with any lending arrangement, make sure you do your research carefully and explore all your options before making a decision.

Source: Capstone Financial Planning

Contributions can play an essential role in a self-managed superannuation fund. Your contributions can be made in two ways – by cash or an asset (known in the trade as ‘in specie’ contribution).

Typically, your SMSF can accept:

• employer contributions
• personal contributions
• salary sacrifice contributions
• super co-contributions
• eligible spouse contributions

The Australian Taxation Office (ATO) is big on paperwork and record keeping for SMSFs. As a trustee you are responsible for documenting all your contributions and rollovers – including the amount, type and breakdown of components. Generally you’ll also need to allocate your contributions to your SMSF members’ accounts within 28 days of the end of the month in which you received them.

Defining allowable contributions

The ATO has set minimum standards for accepting contributions.

• The type of contribution – for example, you can accept mandated employer contributions such as super guarantee contributions from a member’s employer, at any time.
• Your age – for example, if you’re 75 or over you can’t make a non-mandated contribution.
• Whether you quote your tax file number.
• Whether the contribution exceeds your SMSF-capped contributions limit.

Mandated employer contributions

Always popular with employees, mandated employer contributions are defined by the ATO as, “those made by an employer under a law or an industrial agreement for the benefit of a fund member”. Super contributions absolutely fall within this category. The good news is you can say yes to mandated employer contributions to your SMSF at any time, regardless of your age or the number of hours you’re working at that time.

Non-mandated contributions

Non-mandated contributions are above and beyond the minimum by law or obligation payment. They can be made by both employers and SMSF members. In the case of members, the contributions made by, or on behalf of, a member are exclusive of employer contributions.

By age and circumstance

Your ability as trustee of the SMSF to say yes to accept a non-mandated contribution depends entirely on your age and circumstances. Let’s unpack that.

• If you are under 65 years you can generally accept all types of contributions, bearing in mind your SMSF contribution cap. There is no work test.
• If you’re between 65-74 there is a work test. You can say ‘yes’ if you are gainfully employed for at least 40 hours in period of 30 consecutive days in each financial year in which the contributions are made. The ATO is strict on its definition of what constitutes ‘gainfully employed’, as in paid work. Spouse contributions can’t be accepted after you turn 70. You can also accept mandated employer contributions.
• If you’re 75 or over you generally cannot accept any contributions apart from mandated employer contributions.

‘In specie’ contributions

‘In specie’ contributions, refers to transferring assets such as shares or a commercial property direct to the SMSF rather than contributing cash. There are very strict rules on what can and can’t be transferred when it comes to in-house assets – for example, residential property you own cannot be transferred.

Contribution caps

Contribution caps are applied for a number of contributions types made for SMSF members in a financial year.

The two major ones are the non-concessional cap which applies to after-tax contributions and the concessional cap which applies for those contributions for which a tax-deduction has been claimed:

• Concessional contributions are capped at $25,000 per financial year.
• Non-concessional contributions are capped at $100,000 per financial year, however if you are under 65 during the year, you can use the bring forward provisions to use your cap for the following two years thereby allowing a contribution of up to $300,000 in a single year. However, you cannot make a non-concessional contribution if your total super balance at the last 30 June was at least $1.6 million.

Exceeding your cap

If your total contributions exceed the contributions caps those excess contributions could attract additional tax. You can have excess contributions refunded to you, but if you do not take up that option they will be assessed against your non-concessional cap also and if you have breached that cap extra tax maybe payable. Excess concessional contributions are effectively taxed at the member’s marginal tax rate, plus an interest charge.

The ATO is equally firm on the subject of single contributions. Here’s what they say: “Single contributions that exceed a member’s fund-capped contribution limit cannot be accepted by your SMSF. For a member under 65 years old, the limit is three times the non-concessional cap.”

Source: BT

It makes the world go around, but money can be the source of serious problems among couples, in some cases leading to total relationship breakdowns. Of course it’s not the money per se that creates the issues, but rather our views surrounding it – our financial values and whether or not they’re compatible with those of the person we’ve chosen to spend our lives with.

Experts agree that money is one of the major contributing factors leading to separation.

Due to the potential outcomes or fallouts relating to financial management or lack thereof, whether that be buying your first home or surviving on one income after starting a family – arguments about money can be intense.

“The way we think about money represents some of our values, and problems can arise when these values clash,” says relationships councillor Susan De Campo.

“So, if one person believes it’s important to pay off the mortgage as soon as possible and the other person believes it’s important to have overseas holidays every two years, because you will not be able to do both, conflict arises.”

De Campo says couples with opposing financial values can make their relationship work, provided they engage in open and honest communication. The first step though is recognising your own attitude to money, as well as that of your partner. At a very basic level, that’s determining whether you’re a “saver” or a “spender”.

Once you’ve done that, it’s crucial to have the conversation in order to discover each other’s inherent values and belief systems associated with money and finance. Of course, discussions of this nature can deteriorate quickly if not approached with caution.

De Campo suggests underpinning your discussion with an attitude of ‘respectful curiosity’, bearing in mind that the way most people approach money is related to their parents’ financial personalities.

General conversations are a good place to start and once you do get down to the nitty-gritty, try to avoid using accusatory tones. If you disagree on a point, rather than become angry, try to use a question as a catalyst to analyse the issue further.

“A great question to ask is ‘can you help me understand that – it’s not an idea that I grew up with’,” says De Campo.

Accept that you’re different

Understand that different means just that. It doesn’t mean one person is right and the other is wrong. You can agree to disagree, providing you can recognise your individual attitudes and find a way to meet in the middle.

Allocate a “free spend” allowance

If money is tight, and especially if one half of the couple enjoys a frivolous spend, allocate a specific amount for discretionary purchases. Whether it’s per week or per month will depend on your how much disposable income is available, but keeping the value consistent, and removing limitations on what is being purchased, will reduce feelings of resentment down the track.

Draw up a budget

The benefits of developing a detailed budget are significant. Along with painting a clear picture of our financial health, as well as how much disposable income is left after bills and expenses are paid, a budget takes the guesswork out of financial discussions.

Be financially transparent

Trust is crucial for the success of any relationship, and the perception of dishonesty surrounding spending can prompt feelings of betrayal which can be difficult to overcome. Whether your bank accounts are joint or separate, being transparent with spending is important in maintaining a sense of intimacy and trust. Be honest from the beginning, including disclosing any debt or credit problems, and continue to be transparent, regardless of any disagreements.

Get professional help

If all else fails, seek the support of a financial professional. Financial advisers are used to having conversations with couples about these difficult matters and can assist in developing a plan that suits both parties.

Source: Macquarie Group Limited

As the old saying goes, there are only two things certain in life: death and taxes. Unfortunately, most of us spend too much time worrying over the latter and not enough discussing the former, uncomfortable though it may be.

But while no one enjoys contemplating the end of their life, planning for your death is just as important as managing your finances, if not more so.

It’s difficult enough for families to cope with the loss of a loved one, but the added burden of dealing with the remaining estate can make an emotional time even more traumatic – which is why drawing up a will is essential, regardless of your age and the state of your finances. Here’s what you need to know.

What happens if you don’t have a will?

If you pass away without a will, the law will determine who can be appointed to administer your estate and how it will be distributed once debts are paid out.  Administrators have the right to make allowances for persons who might have been left out, which could result in a smaller share being provided to those you love the most. Similarly, others may receive more than you would have otherwise wanted.

If you do have a will

Where is it?

It’s important that your original documents are stored somewhere that’s both safe and accessible. Most solicitors will store your will for you and provide you with a certified copy, which should ideally be safely filed both digitally and in hard copy.

Executors and Powers of Attorney

An executor is the person appointed to administer the estate according to your wishes, and is an essential part of making a will. An executor may be required to sell assets, invest money, complete tax returns and pay debts. Your executor should be someone responsible and capable of undertaking such an important role, especially in complicated cases where the appointment could be long term.

A Power of Attorney is not essential and is appointed in a separate document to your will, as this person’s duties are only relevant during your living years. A Power of Attorney is authorised to act on your behalf in financial or health matters, if you are otherwise unable to do so.

What happens after a death?

Your executor will need to apply for a Grant of Probate in order to begin administering your estate in accordance with the will. An executor is entitled to obtain legal and accounting advice to assist them throughout the application process and dealing with any tax implications for the estate.

Accessing the will

It is crucial that your executor knows where and how to access your will. It’s a good idea to provide your executor with a copy of your will which will include the contact details of the solicitor storing it.

What about super?

Superannuation is usually not included in the distribution under a will, but rather the superannuation legislation and requirements of individual funds dictate how it will be distributed. Special clauses can be included if you wish to bring superannuation into the will but it’s a good idea to seek financial advice first to ensure there are no tax implications.

Disagreements

If there is a disagreement over the will which can’t be sorted out between the parties, then legal representation will be required. The best way to reduce the chances of a disagreement is to ensure your will is carefully drafted and regularly reviewed and updated to reflect your current circumstances.

Whether you’re young and single or have children to consider, creating a will not only ensures your estate is distributed according to your wishes, it drastically reduces the stress and trauma for the family you leave behind.

Without a will, there’s no guarantee your loved ones – and your affairs – will be taken care of in the manner of your own choosing.

Source: Macquarie Group Limited

Many people aged between 50 and 65 are uncertain about being able to cover living expenses in retirement. In the past retirees could rely on the age pension to secure their retirement. Many retirees are now less confident about this source of support, as a growing number of baby boomers are retiring and the number of working people to support them is not keeping pace.

Governments are now encouraging Australians to save and invest on their own, so they can build income streams for retirement to supplement social security payments, and the earlier people focus on how to fund their retirement, the greater their capacity to respond.

How to set retirement goals

The first factor in retirement planning is establishing a retiree’s goals. Not everyone will have the financial resources to meet all their goals, so an adviser must help their client set priorities.

Retirement goals can be diverse, but most belong to one of three broad categories:

1. Essential needs

A person’s immediate need in retirement is to have an income to deal with the essentials in life, including food, housing, transport and paying regular bills. This represents the most important set of goals and requires the most pressing financial attention.

Confidence about the receipt of a steady cash flow becomes paramount. An adviser may recommend strategies centred on income-focused securities that deliver sustainable cash flow which keeps up with increases in the cost of living.

2. Lifestyle wants

Retirees may also want to set aside some capital to fund discretionary spending on goods and services such as holidays, hobbies, or the purchase of a new car. Attainment of these lifestyle wants enables a more enjoyable retirement, but the retiree doesn’t regard them as essential to their wellbeing. To help fund these lifestyle wants, investment strategies should grow capital steadily over time and have a low probability of producing a major or protracted decline in value.

3. Legacy aspirations

Finally, retirees with additional financial resources may aspire to leave a bequest for future generations.

Six things to look for when considering investment solutions

There are six key factors that advisors and investors should focus on when considering retirement investments.

1. A predictable and reliable stream of income: Consider strategies that aim to deliver a steady income in the form of coupons from quality bonds, dividends from shares or distributions from Real Estate Investment Trusts (REITs) and infrastructure.
2. Resilient returns: Focus on strategies that are designed to exhibit greater resilience in challenging market environments.
3. Inflation protection: It’s important that the overall portfolio seeks to grow with the cost of living to maintain purchasing power over time.
4. Tax effectiveness: Even though most retirees have an income tax rate of zero per cent in retirement, franking credits attached to the sustainable dividends of quality Australian companies represent a good additional source of retirement income. But it is important to watch out for potential regulatory change in this area.
5. Liquidity: It is easier to redeem money from liquid investments when a change in circumstances may require it.
6. Transparency of strategy: Seek strategies that are easy to understand and where the manager offers regular communications and insight into how funds are performing against retirees’ goals.

Set up success

The key is to understand retirement goals: what does success and failure look like? What do retirees want at this point in life and how might that evolve over time? What constitutes a ‘must have’; what is ‘nice to have’ and what is ‘aspirational’?

By answering those important questions, various goals can be matched with investment strategies that meet the unique challenges and risks of retirement.

Source: AMP Capital

Market and Economic overview

Australia

• Economic data continues to paint a mixed picture of the domestic economy. The manufacturing PMI survey – a useful gauge of activity levels in the sector – came in below the 50 level; indicating challenging conditions.
• Job advertisements have also been weak and are running -3.7% below the corresponding period a year ago.
• A closely-watched consumer confidence reading also deteriorated sharply in January. The confidence data does not augur well for discretionary spending, which the Reserve Bank of Australia (RBA) is relying on to help inflation return towards the midpoint of its target range.
• For now, inflation remains below target, coming in at an annual rate of 1.8% in the December quarter.
• Over the long-term, the RBA continues to suggest that Australian inflation will return to the target band of between 2.0% and 3.0%.

United States

• The most important market developments occurred towards the end of the month, when the Federal Reserve signalled that US monetary policy is unlikely to be amended in the first half of 2019, at least.
• Commentary from Federal Reserve Board members suggested they may be willing to be patient in determining whether further interest rate hikes are appropriate.
• The focus on the Federal Reserve diverted attention from economic data that was released. More than 300,000 jobs were created in the US in December and there was further evidence that labour market tightening is resulting in wage pressure. Average earnings growth quickened to an annual pace of 3.2%.

Europe

• Growth in the Eurozone economy moderated in the December quarter, declining to an annual rate of 1.2%. This was the slowest pace of growth for five years.
• In spite of the challenging economic conditions, the employment picture has not deteriorated. The unemployment rate remained unchanged at 7.9%; the lowest level since the GFC.
• In the UK, the Brexit debacle descended into further chaos as Members of Parliament rejected Theresa May’s Brexit latest withdrawal proposal. Confidence in the leadership remains fragile, however and lawmakers remain divided over key elements of the UK’s proposed withdrawal from the European Union.

New Zealand

• At 1.9% yoy, the pace of inflation was unchanged in the December quarter. For now, there appears to be limited chance of the RBNZ amending policy settings – interest rates remain at 1.75%, where they have been since late 2016.
• Credit and debit card spending plunged in December, adding to concerns that the economy might be cooling.
• Business confidence remains subdued, though has rebounded somewhat from the very low levels seen in the middle of 2018.

Asia

• Chinese authorities injected more than 1 trillion yuan (around A$230 billion) into the financial system ahead of the Chinese New Year holidays. This followed a stream of subdued economic data.
• Chinese exporters continue to be affected trade tariffs – the value of exports in December declined 4.4% from a year earlier.
• Imports were lower too, suggesting consumer demand is tailing off and unable to offset the impact of lower export demand.
• In Japan, inflation eased to a 14-month low of 0.3% yoy; perilously close to moving into negative territory. This is in spite of ongoing stimulus from the Bank of Japan.

Australian dollar

In early January, the Australian dollar fell below the US$0.70 threshold for the first time since early 2016. The currency then made quite a sharp recovery, closing the month at US$0.729 – an appreciation of 3.6% in January as a whole. The ‘Aussie’ strengthened towards the end of January in particular, following comments from the Federal Reserve that took the wind out of the US dollar’s sails.

Commodities

Commodity prices finished mostly higher in January, led by iron ore (+17.4%) and oil (Brent +11.6%). Easing US/China trade tensions supported commodity prices generally, while iron ore prices rose sharply towards the end of the month following a tailings dam collapse at Vale’s Feijao mine in Brazil. Oil prices rose on improved demand prospects, as US/China trade talks appeared to progress well, and as OPEC continued to sideline supply. Gold (+2.0%) rallied after Federal Reserve policy guidance pushed back timing expectations of the next US interest rate rise. Industrial metals reversed recent losses, with zinc (+14.3%), lead (+9.3%), copper (+7.5%) and aluminium (+4.1%) all seeing gains.

Australian equities

Following the slump in the fourth quarter of 2018, the Australian equity market started the year off with renewed optimism as the S&P/ASX 100 Accumulation Index climbed +3.7% higher. Resurgent global markets, rising commodity prices, solid local employment data and a growing belief that domestic interest rates will stay lower for longer helped ‘risk assets’, such as equities, rally over January. The Energy sector (+11.2%) provided the best return, benefiting from a recovery in oil prices after the near 40% drop in the fourth quarter of 2018.

The 20% climb in oil prices through January helped all constituents to provide positive returns, with WorleyParsons (+21.5%) and Caltex Australia (+5.3%) at the extremes. The Financials sector (-0.2%) not only provided the lowest return, but was the only sector to decline over the month. Small cap stocks outperformed their large cap counterparts, evidenced by the +5.6% rally in the S&P/ASX Small Ordinaries Accumulation Index.

Listed property

The S&P/ASX 200 A-REIT Index returned 6.2% in January. Industrial A-REITs (+9.7%) was the best performing sub-sector, followed by Office A-REITs (+8.0%). Retail A-REITs was the weakest performing sector in January (+2.8%). Major offshore property markets also delivered strong returns, bouncing back from disappointing performance in December. The FTSE EPRA/NAREIT Developed Index returned 10.9% in USD terms and 10.5% in AUD terms, well ahead of broader equity markets. In local currency terms, Hong Kong (+13.3%) was the best performing market, while New Zealand (+4.0%) lagged

Global equities

Global equity markets bounced back solidly in January after a dismal end to 2018, driven by resurgent emerging markets and the US S&P 500 delivering its strongest January return since 1987. The appreciation of the Australian dollar (AUD) over the month dulled returns a little, but the MSCI World Index nonetheless finished up 4.1% in Australian dollar terms.

The S&P 500 rallied just over 8.0% in USD terms on a combination of broadly pleasing earnings results, ongoing progress towards a US/China trade resolution and increasingly dovish commentary from the Federal Reserve. The FTSE 100 in the UK struggled under the continued Brexit debacle, but still returned a respectable 3.6% in sterling terms. Emerging markets brought up their third month of positive returns in style, with the MSCI Emerging Markets Index rallying 5.0% in AUD and outperforming developed markets for the third successive month as well.

MSCI Latin America was again the strongest region, up 11.0% in AUD, whereas MSCI Asia was the weakest, but still up 3.6% even though MSCI India just fell short of a positive result, down -0.1% in Indian rupee. The Brazilian stock market powered the Latin America results, hitting a string of record highs and the MSCI Brazil Index finished the month up 10.7% in local currency terms.

Global and Australian Fixed Interest

Treasury yields drifted lower as investors digested the change in commentary from the Federal Reserve and readjusted their interest rate outlooks for the remainder of 2019 and beyond. Ten-year Treasury yields closed January 5 bps lower, at 2.63%.

The somewhat gloomy economic picture and an expectation that US interest rates are likely to be unchanged for the foreseeable future saw yields in other major bond markets follow Treasury yields lower. Yields declined 9 bps and 6 bps in Germany and the UK respectively, for example, though were almost unchanged at 0.00% in Japan.

Australian government bond yields followed the lead of other major markets and declined during January. The 10-year yield closed the month 8 bps lower, at 2.24%, dragged lower by the subdued inflation reading for the December quarter.

Global credit

Global credit markets were supported by the more optimistic outlook for equity markets, as well as expectations that US interest rates might not be increased as aggressively as previously anticipated.

The yield on the Bloomberg Barclays Global Aggregate Corporate Index fell 19 bps, to 1.36%. The improved sentiment was reflected even more clearly in the high yield sector – the Bank of America Merrill Lynch Global High Yield Index (BB-B) spread narrowed 93 bps, to 3.66% – close to its level from the end of November prior to the December blow-out.

There was a reasonable amount of new supply – less than January 2018, but nonetheless a significant increase from the closing months of last year – and pleasingly there appeared to be no signs of indigestion. New offerings were generally met with reasonable demand and tended to fare well in the secondary market.

Source: Colonial First State.