Market Update - October 2012

Newsletters

 

Quick Update from the team at Active Financial Services

Where has the year gone? It only seems like yesterday we provided a Budget Update Newsletter and were looking forward to the end of the financial year. In a ‘blink of an eye’ time has flown by and we are in countdown mode to Christmas!

Our goal for the second half of the year was to have a central site and data management system that would deliver comprehensive reports to better compliment client reviews. Already we are seeing the benefits for our pilot group of clients and look forward to sharing these enhancements with you all very soon.

In addition, we have launched a new website targeting the growing self-managed super fund (SMSF) segment. If you want to know more about SMSFs we urge you to have a look at the site at www.activesmsf.com.auand speak to your adviser.

Please take care and we will speak to you again before Christmas!

  

Market Insights

Global and domestic share markets have been trending upwards over the last few months and have been less in line with the G7 economic growth indictors. What this potentially shows is  either investors see opportunity for greater economic activity or alternatively, investors are wrong and the market may see a small correction sometime in the future i.e. further volatility.

In Australia the Reserve Bank resumed cutting interest rates with the cash rate falling to 3.25%. The RBA highlighted the need to boost non-mining demand as the mining boom slows.  Australia’s seasonally adjusted unemployment rose to 5.4% in September.  Housing finance fell in July and is still stuck in the sideways trend.  Given the slowing in the mining boom, soft non-mining conditions and the strong Australian dollar, the RBA is likely to cut rates further over the next 6 months.  GDP growth of around 2.5% is expected over the next year. At this stage, economists see the potential for another interest rate cut on Melbourne Cup day sitting at 50/50.

Australian shares rose in September in accordance with the global trend, as assertive stimulus measures from central banks saw a decline in risk aversion.  While shares might see more short term volatility they are likely to provide positive returns on a 12-24 month view with returns of around +10.0% per annum (or +11.5% if franking credits are allowed for) expected.

United States economic data remains consistent with modest growth.  Home builder conditions rose to their highest level in six years and housing starts and home sales continued to trend higher.  Retail sales rose +0.9%.  Payroll jobs growth was modest but unemployment fell 7.8%.

The big news was that the Fed commenced an open-ended quantitative easing (QE3) program and the commitment to purchase US$40 billion worth of mortgage backed securities each month until the outlook for the labour market improves.

The European Central Bank (ECB) pledged large-scale purchases of short term government bonds with the aim of pushing down interest rates and taking pressure off government finances in countries like Spain, if such countries apply for assistance and commit to reforms.  The ECs surveys of business and consumer sentiment were weak and suggestive of a mild recession with sentiment falling to a three year low.  The EC industrial sentiment fell to its lowest level in the past 33 months.  European banks remain reluctant to lend.

China’s economic activity remained soft but in line with expectations.  Forward indicators for investment, such as housing starts and pick-up in infrastructure approvals, pointed to an improvement in growth.

Global shares returned 2.15% with shares in Asia, Japan and China increasing.  Shares may still see more short-term volatility on periodic worries about global growth outlook, however, valuations are attractive for long term investors, global growth is likely to improve in 2015 and monetary conditions are   getting even easier.

 

SMSF Update

After 3 consecutive years of downturns, net flows to self-managed super funds have increased in the 2010-11 financial year.

Australians contributed some $24 billion into SMSFs in the 2010-11 financial year, according to the Financial Services Council’s (FSC) Bond Report. This represented a 15 per cent increase in              contributions (almost $3 billion) from the previous year.

The largest growth rate was represented by discretionary contributions with a 19.8% increase to $24 billion between 2009-10 and 2010-11 while by comparison, employer contributions grew by 4.9% to $6.8 billion during the same period. This information is based on the most recent ATO data which is released annually with a one year lag.

Within SMSFs, listed & unlisted shares account for 31% of total assets, while cash & term deposits  account for 30.5%.

    

Contribution Cap Changes

From July 2012, the Concessional Superannuation Contribution Cap has dropped from $50k to $25k for people aged 50 years or over.

The last time this occurred, the Australian Tax Office (ATO) saw a 31% increase in breaches, likely attributed to people being unaware of the cap changes or they didn’t do a good job of tracking their contributions.

A tax penalty of at least 31.5% is payable for breaches, and the ATO has limited discretion to change its assessments.

Don’t be caught out, if you have any questions or concerns about contribution cap please speak to your adviser.

  

 

 

 

 

  

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