Global equities facing ‘darkening outlook’, SMSFs warned
Global equity markets may continue to grind higher for some time, but upside gains are becoming increasingly limited while downside risks are accumulating, a chief economist has cautioned.
BetaShares chief economist David Bassanese said the global economy continues to be buffeted by a mixture of good and bad news, which makes it difficult for investors to judge how much risk they should ideally be taking.
The economy, he cautioned, is now in late cycle stage, and while this doesn’t mean SMSF investors should be “heading for the hills and stashing their available funds in the mattress” nor should they be holding extensive exposure to equities on the basis that the long bull market will continue to roll on.
“It’s a time for more neutral risk exposure — be invested in equities to a degree you’d be comfortable with over the very long term, as only moderate returns seem likely from here,” Mr Bassanese said.
The main bad news for global equities, he said, is that the US and China have yet to settle their trade differences.
“Indeed, if anything, their trade spat has escalated in recent months, with an apparent backdown on previously offered trade concessions by China causing US President Trump to lift tariffs from 10 per cent to 25 per cent on around 40 per cent of the goods it imports from China,” he said.
“He also announced plans to extend this higher tariff to the other 60 per cent of goods imported from China. Adding to the market discomfort, Trump continues to threaten Europe with higher tariffs and also unleashed a new tariff on Mexican imports due to the illegal immigration problem.”
Mr Bassanese said Australia also faces its own challenges with the ongoing housing downturn starting to have wider economic implications.
“Home building approvals have slid sharply in recent months and are well down from their peak levels. Although there is a pipeline of high-rise apartment building still to be completed, the lack of new projects will start to have an effect on employment growth in coming months,” he said.
“Perhaps even more critically, the weakness in house prices over the past year, especially in Sydney and Melbourne, has caused households –— already challenged by weak wage growth — to slow their spending even further. In terms of the economy, that’s a big deal because consumer spending accounts for around 60 per cent of national output.”
The darkening outlook for the economy has caused the Reserve Bank to change gears, he said. This week the RBA cut the official interest rate by 25 basis points to 1.25 per cent.
“It’s no longer talking about the ‘next move in rates is up’; instead it seems likely to slash rates several times by year-end,” he said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
