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Market Update – December 2019

View from the hill

Domestic and global markets displayed strong performance in November, with US and Australian equity markets both reaching all-time highs. These appeared to be minimally impacted by ongoing concerns surrounding poor economic data and various geopolitical risks including those brought about by the US-China trade war.

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Financial evaluator

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The Australian market hit record highs in terms of index points while valuations, using forward price to earnings ratio (PE) as a proxy, jumped above 17x for the first time since 2001. This is occurring at a time when earnings pressure is intensifying.

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Events dominating again

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We have entered another period where event risks are heightened and appear set to dominate market outcomes over the rest of the year.  Equities have a better relative valuation than bonds and represent the only major asset class where investors have the potential to make decent returns on capital over the next years in our view.

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Finding some pockets of value

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The recent combination of weak economic data and a dismal reporting season has focused attention back on the Australian market, and valuations in particular.  Pressures on the economy may not improve, as further weakness in housing construction appears on the horizon.

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