Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 313

More please: FY2019 was almost everything up

The month of June 2019 capped off a rare half-year when all of the main types of investment posted higher returns than their long-term annual averages for a full year. Everything went up except residential property.

A game of two halves

Although the overall returns for the 12 months turned out to be good, it was a ‘game of two halves’, with a sea of red ink in the first half and strong rebounds in the second half.

In fact, if an investor had been living on the moon or under a rock for a year, they would have returned delighted at the end of June. If they looked at their portfolio balances for the first time in a year, they would have said something like, "What a great year – everything must have been good in the world. I’ll have another one of those, thanks!"

All they would see are the returns for the full 12 months, shown below in the right-hand set of bars. The broad Australian share market returned 11%, as did unhedged international shares. Bonds also returned better than their long-term averages: 9% for Australian bonds, and 7% for global bonds. Returns from the Australian listed property market were nearly double their long-term average. And all with inflation at just 1.3% for the year.

We had turned defensive from April 2018 by reducing allocations to Australian and global shares to prepare for a fall. We also reduced our currency hedging on global shares to benefit from the falling AUD, increased bond allocations and added gold and US dollar cash. These changes helped cushion investors from most of the December pain. Then in 2019 after the sell-off, we increased our allocations to shares and shifted portfolio settings back toward a moderately-bullish stance.

Why such a difference?

In the first half (July to December 2018) share prices fell sharply in a global slowdown scare, driven by fears of Trump’s trade wars slowing global growth rates, China’s reluctance to stimulate its slowing economy, two more rate hikes from the US Fed, and fears the Fed would continue to raise rates despite early signs of a slowing US economy. Australian shares followed the global rout, although by not as much as the sharp -20% fall in the US market from late September to late December. It was the worst December for US shares since 1931. In the midst of this global panic, I fielded numerous calls and emails from worried investors asking if this was ‘the next GFC’ or even worse.

The first half of 2019 turned out to be a complete turnaround. The Fed stopped raising US interest rates and even started talking about possible rate cuts, the Bank of Japan and European Central Bank also talked up the prospect of providing more support, and China ramped up its stimulus efforts with spending increases, tax cuts and subsidies. In Australia, the RBA shifted its stance toward lower rates. Bank shares benefited from being let off lightly by the Hayne Royal Commission and the re-election of the Morrison government.

Some highlights among Australian stocks

Australian shares have beaten most other countries this year, driven largely by three broad themes:

  1. Collapsing local and global bond yields
  2. Hopes of a housing turnaround following the re-election of the Morrison government, the easing of APRA lending restrictions, and rate cuts from the RBA, and
  3. One-off commodity price rises.

The collapse in bond yields helped utilities (mainly APA +36% this year, and Ausnet +26%), infrastructure (Transurban +30%, Atlas Arteria +27%), listed property trusts (mainly Mirvac +46%, Goodman +45%, Dexus +29%, Stockland +25%, but the retail trusts were very weak), and also Telstra (+36%).

Hopes of a rebound in housing has helped the banks, especially after the election. Shares in the Big Five are up 13-15% each.

Miners have done well despite the general global slide in most commodities prices with the global slowdown. Iron ore miners have benefited from rising iron ore prices caused by mine closures in Brazil (Fortescue +119%, BHP + 25%, RIO + 32%), and rising gold prices lifted the gold miners (led by Newcrest +47%). The mini-recovery in oil prices this year thanks largely to the escalating Trump/Iran conflict has also benefitted oil/gas stocks (Santos +29%, Woodside +16%).

Most global share markets have also been strong this year. The US tech giants have led the rebound: Apple +25%, Amazon +26%, Facebook +47%, Microsoft +32%, Netflix +37%, and even Uber has climbed back above its IPO price after a poor start. Only Alphabet (Google) has been flat this year (+4%).

Every other global sector, and every major country (apart from Japan +6%), has also returned more than 10% this year, which is more than their usual annual averages.

Bond prices and returns in Australia and around the world have benefited from the continued broad decline in bond yields across the board.

But there is a major disconnect here

The global collapse in bond yields reflects increasingly grave fears of slower growth and even possible recessions in Australia, US, Europe, Japan and many other countries, but share prices everywhere have been surging in anticipation of more sugar hits in the form of lower interest rates and more stimulus to try to arrest these slowdowns. These two are incompatible of course and cannot last for years.

We will no doubt have another ‘global reflation’ scare or two (like February and October 2018), and share prices are sure to correct once again as they are starting to run ahead of weakening profit growth rates.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is for general information purposes only and does not consider the circumstances of any individual.

RELATED ARTICLES

The perfect portfolio for the next decade

The BIG picture: portfolios perform for the passive and patient

Which asset class in Australia offers the best value now?

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.