Shares are vulnerable to a short-term correction with possible triggers being the latest upswing in global coronavirus cases, the inflation scare and US taper talk and geopolitical risks. But looking through the inevitable short-term noise, the combination of improving global growth and earnings helped by more fiscal stimulus, vaccines allowing reopening once herd immunity is reached and still low interest rates augurs well for shares over the next 12 months.
Still ultra-low bond yields and a capital loss from rising yields are likely to result in negative returns from bonds over the next 12 months.
Unlisted commercial property may still see some weakness in retail and office returns but industrial is likely to be strong. Unlisted infrastructure is expected to see solid returns.
Australian home prices now look likely to rise 20% this year before slowing to around 5% next year, being boosted by ultra-low mortgage rates, economic recovery and FOMO, but expect a progressive slowing in the pace of gains as poor affordability impacts, government home buyer incentives are cut back, fixed mortgage rates rise, macro prudential tightening kicks in and immigration remains down relative to normal.
Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%. We remain of the view that the RBA won’t start raising rates until 2023.
Although the $A could pull back further in response to the latest coronavirus scare and the threat it poses to global and Australian growth, a rising trend is likely to remain over the next 12 months helped by strong commodity prices and a cyclical decline in the US dollar, probably taking the $A up to around $US0.85 over the next 12 months.
Eurozone shares fell 0.4% on Friday and the US S&P 500 lost 0.8% reflecting ongoing concerns about rising inflation and a decline in US consumer sentiment. The weak global lead saw ASX 200 futures fall 37 points, or -0.5%, pointing to a weak start to trade for the Australian share market on Monday. This will likely be accentuated by tougher lockdown restrictions on retail and construction announced on Saturday.
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