July 2015 Outlook

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We have seen a pullback in June after a very strong start to the calendar year, but it feels like there will be more opportunities to invest at cheaper prices later this year. Despite a small relief rally in early July as Greece looks to be solved for now and China announces massive stimulus to hold its stock market at levels around 70% higher than this time last year, most markets remain range bound. On one hand, economies remain relatively weak. On the other, the US Federal Reserve seem to be wanting to get that all important first interest rate rise out of the way so they can say they are on the path to normalising interest rates.

In Australia, we seem to switch back and forward between expecting more interest rate cuts and not. Personally, we think Australia is pretty much done with cutting rates this cycle, but, much like the US, we don’t expect to see a return to sharp increases any time soon.
Without the stimulus of a greater number of interest rate cuts than the market expects, or upside surprises in economic indicators or company earnings, it would seem to be difficult for stock market and property prices to move materially upwards in the near term. Thus we will look to make small additions to the portfolio and days, weeks or months when the market is feeling down, and we will remain patient at other times.

We feel the easy money has now been made in offshore markets as well, with the fall in the Australian dollar removing much of the margin of safety, particularly given valuations in most markets are no longer cheap. The current rush by Australian investors to increase exposure to offshore markets may be a little late.

We would still not be surprised by a 10-15% market correction in the US market at some point this year, but the recent correction in Australia probably means we are unlikely to be affected to the same degree here if/when it does occur.

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