Market Commentary

by Chris Limberg on Dec 15, 2012

The December quarter has delivered relief for investors with the S&P ASX 200 finishing the quarter up 6% closing at 4,648 due to two rate cuts from the Reserve Bank of Australia (RBA) and market commentary predicting further rate cuts in 2013. The impact of the rate cuts has created a chase for yield, which has driven the market to levels not seen since March 2011 and the rise has continued into January.

In the USA there are indications that the US economy is beginning to grow with the issues relating to the US fiscal cliff still contentious and the IMF continuing to revise down its 2013 growth prospects of both the USA and the World.

Market analysts are proving exceptionally bullish based upon recent interest rate cuts and growth prospects in China. In January the financial press published analyst expectations for the forthcoming year and in every instance the predictions were that the market would exceed 5,000 points and finish the year higher.


  • The RBA cut interest rates twice during the quarter by 0.25% in October and December; the current cash rate is now 3.0% pa. The RBA expectation is for investors to enter higher risk markets looking for yield to supplement the missing income from cash and term deposits.
  • The hybrid note market grew further in the quarter with several new issues. Recent issues were by MYOB and Bank of Queensland both paying attractive yields. It is expected that new issues of notes will continue in the New Year and where appropriate we will selectively review relevant opportunities for inclusion in portfolios.
  • Iron ore prices continue to recover and peaked at around $160 per tonne in the quarter.


  • China has completed a successful leadership change and achieved an apparent soft landing. Going forward the new Chinese leadership has indicated its future GDP growth expectation is around 7-8% pa and infrastructure spending is to continue. A recent report released in December by an analyst on his return from China highlighted the transformation of the country over a very short period of time. He compared the level of development between 2005 and 2012 primarily though the vast expansion of the bullet train network, initially in 2005 there were four connections and in 2012 the number is now in the hundreds. A further observation made by the analyst was the number of tower building cranes observed in the major cities as he arrived, his description was a forest of cranes.

North America

  • Wall Street continues to push the Dow and S&P 500 to near new highs.
  • Corporates are reporting increasing revenue growth and profits.
  • The politicians continue to bicker, hindering the recovery through their failure to achieve a satisfactory package to resolve the fiscal cliff crisis.


  • Equity markets have performed strongly during the quarter. While the outlook within Europe is still dire with most countries in the EU either close to or in recession.
  • Unemployment remains high throughout Greece and Spain
  • The banking system will take years to repair before normality can return to European economies.

In summary the domestic trends look encouraging. China and other emerging markets are showing signs of growth. The economic recovery looks to have taken root in the US. The political and economic risks in Europe remain but seem to be contained. However, there remain significant risks and cautious optimism is the appropriate position.

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.