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Spring 2019 Economic Commentary

Since 2008 we’ve been accustomed to reporting a strong final three months of the year. Unfortunately, the final quarter of 2018 delivered disappointing returns and most equity markets (outside New Zealand) closed the year in the red.

In the accompanying Summer Update, the investment market review explores some of the elements that may have contributed to the change in investor sentiment observed over the quarter. It also explains that it’s not all bad news. Market corrections are anticipated and are factored in to our long term investment projections. This is important, because it means a correction of the kind we witnessed in the last quarter is generally not something that will derail a prudent long term investment strategy.

In the feature article, we discuss the importance of independence. This subject was placed firmly in the spotlight throughout 2018 with the Royal Commission in Australia investigating practices in the local banking, mortgage and insurance industry. Many of the findings of the Commission made for quite unpleasant reading, with some of the larger institutions Australia engaging in practices that exhibited a tendency to promote the interests of the institution ahead of the client. A large part of the reason for this was a lack of independence.

Encouragingly, as we enter 2019 the equity markets on average (as at mid January) have so far been positive. It’s not a large enough data set to say anything definitive about the year ahead, but it might reflect that the late 2018 correction did its job, and that investors now are seeing much more value in the asset prices available to them today. However, with 11 months of unknown future news and events still to traverse, it would be unreasonable to paint this as anything more than a promising start.

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Summer 2019 - investment commentary