It's quarter time in 2012

Published in Herald Sun.com, March 2012 by Karina Barrymore

Economists and investment experts believe more market turbulence is likely in the middle of the year but volatility will give way to a strong second half.

Analysing the prospects for Australia's economy this calendar year, the panel says a short-term rise in unemployment over the coming months may force the Reserve Bank to lower interest rates to 4 per cent.

However, most market watchers say forward indicators point to a pick-up in jobs growth later in the year as confidence flows back into the economy.

Analysts surveyed by Business Daily said uncertainty about China's prospects would dominate sentiment in the near future, with markets set for a "sluggish" period over the next few months.

They also continue to harbour concerns about the outlook of the eurozone.

The US recovery would nonetheless support the global economy, panel members said, and accordingly fuel business investment and jobs growth in Australia going into 2013.

"The market is being held back at the moment by concerns about China, the high Australian dollar and interest rates,"AMP Capital Investors chief economist Shane Oliver said. 

"But the market is relatively cheap ... and once we get through a volatile rough patch in the middle of the year, things should improve markedly."

Dr Oliver is tipping a 10 per cent rise in the stock market by the end of the year as China moves to stoke its economy and bolster consumer spending power.

CommSec economist Savanth Sebastian warned more "headwinds" were coming out of Europe.

But it was the strength of Australian interest rates relative to rates in the US that would play the key role in pushing the local dollar to almost $US1.10, he said.

US Federal Reserve chairman Ben Bernanke this week reiterated that the US recovery was fragile, giving investors confidence interest rates were likely to stay close to zero until 2014.

Concerns about the potential spread of Europe's sovereign debt crisis from Greece to Spain were played down by analysts.

The European Central Bank's intervention last year has been credited with preventing the rot spreading to the region's banking sector. 

Europe's recession this year is now tipped to be "mild" rather than "deep". 

UBS head of investment strategy George Boubouras said Europe's problems were continuing but "we are becoming more comfortable with the global outlook".

CASH 

The average interest rate paid on a six-month term deposit was 5.11 per cent during the first quarter - less than the previous three-month period, when term deposits averaged interest of 5.23 per cent. 

According to analysis by Infochoice, term deposit rates have been sliding since June last year and are expected to continue falling.

"Quarter on quarter, we are seeing a considerable reduction in interest rates for term deposits," Infochoice spokesman Matthew Cuming said yesterday.

"We expect this trend to continue in the year ahead." 

The average six-month term deposit for the three months to June last year was 5.6 per cent - about half a percentage point higher.

"Given term rates are reducing, what may be a good alternative for investors is to look around at the higher interest savings accounts.

"At the moment the highest three-month term deposit rate is about 5.8 per cent but the highest savings account is up to 6 per cent."

AMP chief economist Shane Oliver expects the official interest rate to come down as the Reserve Bank loosens its stand.

"Rates might even be cut next week. I think rates are going to come down either next week or the month after, it's just a matter of timing," Dr Oliver said.

"In the past few days there has been renewed talk of a rate cut."

SHARES

Shares have been the stand-out performer during the first quarter, with the All Ordinaries Index recording relatively strong growth. 

Individual sectors within the Australian share market, however, have enjoyed mixed results.

Investors appear to be favouring smaller companies ahead of the traditional blue-chip stocks. 

According to Dale Gillham, fund manager at Wealth Within, the top 20 companies significantly underperformed the rest of the market with returns of just 5.4 per cent during the three months to March.

"Investors are preferring the smaller cap shares with some good growth coming from outside the top 200," Mr Gillham said.

"Given companies outside the top 200 have very little weighting in the All Ords, to see a 2 per cent difference between the rise of the All Ords and the top 20 implies that many smaller cap shares have had a stellar run.

"This is in contrast to last year where risk aversion was the top priority."

AMP economist Shane Oliver cautioned that "the easy gains" in the share market could be behind us.

"The market often comes in to a tougher patch from May onwards and seasonal weakness in the September quarter, (so) we could see a bit of time with the market turning around or coming off a bit over the next few months," Dr Oliver said.

SUPERANNUATION

A recovery in investment sentiment has boosted most superannuation funds, with industry analysts forecasting returns for the three months to March of 5-6 per cent. 

Independent research company SuperRatings has revealed the average balanced fund is expected to finish the quarter up at least 5 per cent, after three consecutive months of positive returns.

More than 70 per cent of people have their super savings in a balanced fund. 

SuperRatings investment research manager Salvador Saiz said yesterday the three-month spurt was the longest consecutive run of positive results since early last year.

"This is an encouraging sign for fund performance in 2012," Mr Saiz said. 

"However, we still need to moderate our expectations as markets continue to grapple with uncertainty and will continue to overreact to both positive and negative news and events."

The higher-risk growth fund option is expected to return about 6 per cent.

The low-risk option of capital stable funds are expected to lag over all super fund results with a forecast return of about 3 per cent for the quarter, the research manager said.

"With the end of the financial year fast approaching, members are likely to see their balances grow but nowhere near the 8.7 per cent median return of last financial year," Mr Saiz said. "On current estimates, the financial year to date return is close to 1.5 per cent." 

PROPERTY

Melbourne residential property lost value during the first three months of the year, although the decline is slowing.

"The market continues to show weakness but (it is) not as weak as last year," RP Data senior analyst Cameron Kusher said yesterday.

"Clearance rates have picked up, partly because prices are cheaper but also because confidence is a little bit better than last year, although we will continue to see falls in Melbourne values.

"Historically when a market has a period of outperformances, it tends to underperform for the next period."

Melbourne prices have increased 45 per cent since 2007, outstripping any other state, so there was room for prices to ease, Mr Kusher said.

Greville Pabst, chief executive at property advisory and valuation group WBP Property, believes prices are starting to steady.

According to Mr Pabst, Melbourne values have remained steady or slightly increased so far this year.

"Statistics are not yet available for March but the overall strength I have witnessed over the past three weeks suggests there will not be deterioration in values," he said.

"If the overall Melbourne median is holding, this suggests well-positioned, quality investment-grade property is on track to achieve annualised capital growth of 3 to 7 per cent for the full year -- barring any further economic shocks".