The S&P/ASX 200 Accumulation Index was down 0.12% in December. The flavour of the month was risk-off, as Utilities (2.88%) and Healthcare (2.94%) were among the only positive sectors, given their historically defensive nature. Renewed confidence in Chinese stimulus pushed Materials (5.31%) higher. Information Technology (-3.97%) followed its US peers lower, while Financials (-3.08%) were dragged down by the banks as housing prices continue to decline in the major capital cities.

Weaker domestic data (Q3 GDP Growth was below expectations) and hawkish action from the US Federal reserve saw the Australian yield curve flatten. The RBA will be inclined to keep the cash rate on hold as they balance moderate growth with a volatile and still overheated housing market. Further declines in property prices are expected and the RBA will be monitoring closely to see if there is any negative spill over into the broader economy.

Global equities remained under pressure in December as fears about global growth loomed large. The inversion of the US 5-year and 3-year yield curve spooked markets and a deterioration in US–Chinese relations continued to fuel concerns of a trade war. US markets were fiercely down over the period with the S&P 500 (-9.2%) and the Nasdaq (-9.5%) both struggling. Europe was also weaker (MSCI Europe -5.5%) as political turmoil in the Italy, UK and France create investor concern. Emerging Markets fared better than their Western counterparts as Chinese stimulus and a reprieve in materials prices gave some relief (MSCI EM ¬ 2.8%).

We expect ongoing volatility, but are finding good bottom-up opportunities. Some of our strongest periods of outperformance have emerged from downturns as we use the volatility to add to our holdings in quality businesses at attractive valuations. We have identified a number of high conviction ideas with significant excess returns on offer and are building strong active positions in these companies.

Disclaimer

This document has been prepared by DNR Capital Pty Ltd, AFS Representative – 294844 of DNR AFSL Pty Ltd ABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst DNR Capital has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and recipients must make their own enquiries concerning the accuracy of the information within. The general information in this document has been prepared without reference to any recipient’s objectives, financial situation or needs. Before making any financial investment decisions we recommend recipients obtain legal and taxation advice appropriate to their particular needs. Investment in a DNR Capital managed account can only be made on completion of all the required documentation.

Source: Motor Trader E-Magazine (Feb 2019)

15 Feb 2019