Investors and business might have got the Prime Minister they wanted in Malcolm Turnbull, but external factors dominated the market yesterday with uncertainty about the US Federal Reserve’s decision on interest rates helping push the S&P/ASX 200 index down 1.6% to 5,096.points.

Instreet Investment Managing Director George Lucas says the market has only put a 30% chance on the Fed lifting rates, but the uncertainty around its decision has caused volatility in the markets – “possibly more than we would see if they did announce an increase.”

“Even if the Fed doesn’t raise interest rates this week, it is likely to begin tightening monetary policy soon. If this happens, here’s a summary of asset class performance during previous periods of tightening:

  • US equities – The US domestic stock market tends to fare well, not particularly surprising given higher rates often reflect a stronger economic climate.
  • Bonds – The 10-year treasury yield has tended to rise as investors reassess the likely path of short-term interest rates.
  • Emerging markets – The response for emerging markets is not clear-cut. In 1994, it was a disaster when surprise hikes caused an outflow of capital and exacerbated the Mexican peso crisis. In 1999, emerging markets faired relatively well as they clung to the coattails of a boom in developed markets. In 2004, the emerging world was in the early stages of rapid economic growth. We think it is likely to fall somewhere in the middle, avoiding a 1994-style crisis but no 2004-style boom.
  • Australia – Australia is more likely to behave like an emerging market due to the heavy weighting of our financial and resource sectors.”

China remains the wild card with Lucas not expecting August’s data to calm fears about a hard landing or provide hope that growth momentum is picking up.
“That said, not all the data has been bad and retail sales are better than expected.

“In terms of inflation, China’s CPI rose to a 12-month high of 2% in August year-on-year, up from 1.4% in July. The increase was slightly larger than most had anticipated. Looking ahead, expect inflation to rebound over the coming quarters.

“China’s credit data for August confirmed that policy easing has led to a turnaround in credit growth. The data showed that both lending to the real economy and broader credit are accelerating – exactly as expected after the recent shift to policy easing.

“Although this might raise questions about the level of debt, it should provide support for the economy in the short term and calm concerns about a hard landing.”

About Instreet

Instreet is an independent investment house that works closely with the financial adviser community to conceive and distribute retail investment products. After identifying adviser needs and market trends, Instreet builds customised investments sourcing quality wholesale providers. By doing so, Instreet makes institutional assets available to individual investors. The end result is a range of investment solutions designed to better achieve the goals of clients and advisers.
For more information:

Instreet: George Lucas – 0418 202 228

Shed Media: Simrita Virk – 043 4531 172

September 16, 2015

Markets await Fed response this week

Investors and business might have got the Prime Minister they wanted in Malcolm Turnbull, but external factors dominated the market yesterday with uncertainty about the US […]
September 14, 2015

Dalton Nicol Reid becomes DNR Capital

Australian equity investment manager Dalton Nicol Reid announced today it will change its name to DNR Capital. The name change reflects the evolution of the Brisbane-based […]
September 7, 2015

Specialists to hone practical skills at SMSFA National Conference

Specialist members will have the opportunity to participate in practical, hands-on workshops over the two-and-half days of the SMSF Association 2016 National Conference being held in […]
September 7, 2015

Market volatility to be the new normal says Instreet

Fears about a slowing Chinese economy, sparking an aggressive sell-off in equities across the globe on “Black Monday”, was an over-reaction by investors and a misreading […]
August 24, 2015

Nominations for The Australian Hedge Fund Awards 2015 shine a light on the Australian hedge funds industry

Hedge Funds Rock & The Australian Hedge Fund Awards are delighted to announce the category finalists for the Australian Hedge Fund Awards for 2015. Once again […]