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by Lauren Ryan, Investor Relations Manager, ThinkTank
On 29 August 2018, the ASX200 peaked for the year at 6352. Today, it closed at 5580 for a loss 12% in a little over three months – a curt reminder of equity market volatility.
But if you thought 2018 was a bumpy ride for equities, the portents for 2019 are far from promising. Why? Despite the G20 summit in Buenos Aires, trade wars (especially between China and US) remain an issue, the US economy is slowing down as interest rates rise and the stimulatory effect of Trump’s tax cuts are wearing off.
Locally, the September accounts showed the economy slowing with quarterly growth of 0.3% (economists were tipping 0.6%). Both household and business spending are cooling, and construction might be peaking. And upcoming federal and NSW elections are likely to dampen economic activity as business awaits the voters’ verdicts.
So, should investors, particularly SMSF trustees, reassess their investment strategies and take the opportunity to be more heavily weighted towards commercial property?
Supply and demand factors rank high in Thinktank’s market analysis, and its positive impact is evident in the office and industrial sectors. Office owner/occupiers with access to low-cost debt to fund relatively high-yielding assets.
But the fundamentals for the retail sector tell a different story. Retail sales are weak and consumer buying patterns are changing, impacting both large department stores and smaller speciality shops. But it’s sub-regional shopping centres that are really feeling the squeeze in terms of transaction prices with capitalisation rates rising after years of tightening. The one notable exception is neighbourhood centres where grocery store anchors remain well priced due to their mainstay – non-discretionary spending.