Speaking to Nest Egg about the year ahead on the Aussie markets, Julia Lee, Bell Direct’s equities strategist, said investors should batten down the hatches and prepare for a tough first quarter based off the traditional cycles of the markets.
“2018 has been quite a difficult one. We’ve seen the first three months of 2018 and the last four months see negative returns,” she said.
“If you strip back those first three months and the last four months, we could have seen a return of around about 10 per cent. So, that volatility that we’ve been seeing has had a big impact.
“If you look at the pullbacks we’ve seen in the Australian market over the last 10 years, so 2015 and 2011, they generally last two quarters.
“So, this one’s nearly five months in, so you could almost say we’re just over halfway. So, I think the first quarter of next year could still be quite a difficult one.”
Ms Lee says continuing drops in the housing market, current low money stock and poor car sales all point to a weakening domestic economy, and signifies investors should be considering defensive allocations away from these sectors.
“I think domestically, the economic conditions are deteriorating,” she said.
“That’s been seen by the weaker housing prices, money supply has been at a 26-year low, and we’ve seen seven consecutive months of declining growth in new vehicle sales. So, that’s certainly something that I’m keeping a close eye on.
“For the time being, steer away from those domestically focused sectors like exposure to residential housing or even discretionary retail. Just wait for that to wash through, and see how long the softness might be occurring and how deep it might be.
“Because of those weakening domestic factors, there’s more of a preventative stance on the market for the first quarter of the year, which means a higher exposure to defensive sectors like utilities and consumer staples.”
Ms Lee remains positive, however, recommending investors consider reintroducing growth assets into portfolios come the second quarter.
“After that first quarter, I think it’s time for investors to re-evaluate and have a look for opportunities on the market… starting to reintroduce some of those growth assets," she concluded.