It’s been an eventful month for markets. The Coalition’s Federal election win, the RBA’s rate cuts and a continuation of the US-China trade tensions have all impacted markets during the month of June. Domestic markets reacted positively to the Coalition win with some of the pessimism surrounding the housing market subsiding. The RBA’s rate cut was not unexpected with most analysts having already priced in the cut and potentially another.
Interestingly, the market narrative has turned to the possibility of the RBA undertaking a quantitative easing (QE) program domestically in a similar fashion to what we have seen in Europe and the US, whereby the RBA would buy government and corporate bonds using cash on its balance sheet. This would result in effectively flooding the market with liquidity while keeping rates low. Should rates continue their downward trajectory and QE become a reality, it may force investors into equities providing a tailwind for markets, as we have seen in Europe and the US in recent years. This is particularly relevant for retirees who may be forced into increasing their exposure to Australian equities as a source of income. The trade tensions between the US and China continue to adversely impact markets contributing to bouts of volatility. The longer the ‘trade wars’ the higher the probability that we will see longer-term impact on global growth.
These factors make it a challenging period for investors where factors other than market fundamentals are having a material impact in the trajectory of markets. In such an environment, we believe selective valuation opportunities will present themselves for long-term investors, however ensuring that your portfolio is diversified will be very important in navigating an increasingly volatile market environment.