Welcome 2015! In our first post for the year we present our monthly Global Market Review, including a look at what we might be in for in the coming year.
The highlight for December 2014 was most certainly the stunning collapse in oil prices. This was associated with further weakness in the A$. On a hedged basis, however, the local equity market produced modest gains in line with the global benchmark, with interest-rate sensitive financials and property sectors outperforming resources. A major theme was that weaker oil prices added to expectations that global inflation and interest rates will stay low, supporting both fixed income and equity markets.
Looking ahead for the year, the fact that central banks remain more fearful of deflation than asset price bubbles should underpin risk markets in 2015. As regards interest rates, our base case view is that the RBA will leave interest rates on hold, for an unprecedented two years running. This means that while resource stocks may do better by H2 ’15, the “yield chase” may well remain an important theme in the local equity market for some time.