Investment Portfolio Monthly Report – May 2014
05 Jun 2014
Economic Review At its meeting on 3 June, the Reserve Bank of Australia decided to leave the Cash Rate unchanged at 2.50% for the tenth consecutive month and stated that based on present economic indications, the most prudent course is likely to be a period of stability in interest rates. The seasonally adjusted estimate for Dwellings Approvals fell 5.6% in April and has fallen for three months. The latest ABS Retail Trade figures show that Australian retail turnover rose 0.2% in April, seasonally adjusted, following a rise of 0.1% in March. Employment increased by 14,200 to 11,572,900 in April and with the Participation Rate decreasing slightly, the Unemployment Rate remained unchanged at 5.8%. The Australian Dollar strengthened by 0.34% against the US Dollar during May to close at 0.9319. In the United States, information indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Real gross domestic product decreased at an annual rate of 1.0% in the first quarter of 2014 according to the "second" estimate released by the Bureau of Economic Analysis. Nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4% to 6.3% in April. Inflation remained within target with the Consumer Price Index increasing 0.3% in April on a seasonally adjusted basis. Over the last 12 months, CPI increased by 2.0% before seasonal adjustment. In May, China's PMI was 50.8%, an increase of 0.4% month-on-month and a five month high. The Consumer Price Index increased by 1.8% year-on-year in April. Strategy In Australia, some indicators of consumer and business confidence have improved from a year ago and exports are rising. There has also been some improvement in the labour market but it will probably be some time yet before unemployment declines consistently. Mining investment is set to decline significantly over the next 12 months and Government spending is expected to be subdued. We expect economic growth in Australia to remain below trend for some time to come. We believe the US economy will continue to improve at an accelerated rate and for unemployment to decrease further. Accordingly, we continue to recommend a diversified portfolio with exposure to both the Australian and US economies. Australian Equities reward investors with attractive dividend yields whereas US Equities offer higher capital growth.