INTRODUCTION

Welcome to the summer edition of our “Directions” newsletter. The Christmas season is fast approaching and our Wealth Management Team wish you a very enjoyable and safe festive season spending time with your family and friends.

In this edition we provide an economic update. Inflation data suggests interest rates will continue to remain at low levels whilst the Australian Share Market had a 4% rise in October, its best monthly return this year. Global equity markets continue to reach record level highs with good indicators for solid growth for 2018.

At this time of year it’s important to continue being vigilant of scams from criminals who are hoping to finance their Christmas at your expense, so we have included an interesting article “Struck by a Smooth Criminal”. Please take the time to read this so you’re not caught off guard during the busy weeks ahead.

Our Wealth Management Team has included a few of our favourite and easy Christmas entertaining recipes and we hope you will try them over the holiday season.

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Contact us

Our Wealth Management Team welcomes any queries, so please contact us.

• Call 03 9268 9350
  
• Email financialplanning@bankvic.com.au
  
• Visit our website bankvic.com.au/financialplanning
  

MARKET UPDATE

Australia

CPI data for the September quarter showed a 1.8% increase in prices over the past year. This fell below expectations of a 2.0% price increase. Recent increases in utility prices had a more modest impact on the inflation rates than anticipated.

Housing and transport costs also continue to rise for most Australians, but lower food costs lowered the overall inflation rate. Inflation has undershot the Reserve Bank of Australia’s 2% to 3% CPI target for almost two years, suggesting domestic interest rates might remain low for an extended period.

There was some good news on the employment front, with nearly 20,000 jobs added in September. This lowered the unemployment rate from 5.6% to 5.5%.  Some economists          have suggested that this could result in upward pressure on wages and, in turn, inflation in 2018.

Europe

Preliminary estimates suggested inflation in the European region declined to 1.4% in October, reflecting moderate energy and services costs.

As anticipated, the European Central Bank maintained its benchmark refinancing rate at 0% at its latest meeting, but did announce a reduction in the scale of its quantitative easing program.From January 2018, the Bank will reduce its bond repurchases to €30 billion per month (down from €60 billion per month currently).

It has, however, extended the scheme by nine months suggesting persistently low inflation requires ongoing stimulus.

Whilst still high by Australian standards, the unemployment rate in Europe continues to follow a downward trend. Unemployment rates fell to 8.9% in September, the lowest since January 2009 and well below the average of the past 20 years.

According to the latest data, economic growth in Europe continues to outpace that of the UK. Eurostat has estimated that the GDP of the 19 euro member states rose 2.5% during the yearending 30 September; well above the UK’s 1.5% growth rate. ‘Brexit’ talks – regarding the UK’s planned withdrawal from EU – are continuing, albeit at a slow pace.

New Zealand

Business confidence dropped in October, reflecting political uncertainty. During October, the Labour Party formed a coalition government with the populist New Zealand First Party breaking the nine-year rule of the National Party.

The new government is believed to be considering ways of reducing immigration and restricting foreign ownership of property.

There has also been speculation that the new government could amend the mandate of the Reserve Bank of New Zealand to include employment as well as inflation targets. For now, interest rates remain on hold at 1.75%. Markets are not currently anticipating an increase until 2019, which is contributing to currency weaknesses.

Asia

Data showed China’s economy grew 6.8% in the year to 30 September, slightly below the growth rate in the March and June quarters, but still in line with broader consensus.

Additional Chinese economic data remained reasonably encouraging. Manufacturing data moderated slightly, butremained close to recent highs. Fixed asset investment andManufacturing activity also slowed slightly in October.

The 19th assembly of the Communist Party also attracted investors’ attention, but President Xi affirmed that China would pursue greater economic and financial reforms and seek to further open its markets to foreign investors.

The Communist Party has an agenda to push the economy towards high-quality rather than high-speed growth.

US

In spite of hurricanes Harvey and Irma, which dampened activity, the US economy grew 3.0% YOY in the September quarter; pleasingly similar to the 3.1% for the June quarter.

The latest payroll data disappointed, again likely affected by the recent storms. New job vacancies remain robust; however, suggesting employment could improve before year-end.

The latest Federal Reserve Board meeting was held on 31 October and 1 November. Official interest rates were left unchanged at this meeting, but an increase in December remains likely.

This decision continues to be the key focus for investors globally and is affecting sentiment towards markets.

In the statement that followed the latest meeting, the ‘Fed’ amended its previous description of current US economic growth from ‘advancing moderately’ to ‘solid ‘. Observers tookthis as a additional signal that rates will be increased for the third time this year at the mid-December meeting.

Australian dollar

The Australian dollar performed poorly against most major peers in October, losing around 2% against a trade-weighted basket of currencies. Against the US dollar, the Australian dollar is now trading at its lowest level since early July 2017. The weakness in October was primarily driven by the subdued inflation reading, which suggested local interest rates are unlikely to be raised any time soon. This is in contrast to the US, where a rate hike is widely anticipated in December.

Australian equities

After five months of subdued performance, the ASX 200 jumped 4.0% during October; its best monthly return so far this year. All industry sectors posted positive returns, with Energy (+6.5%), Consumer Discretionary (+6.2%) and Health Care (+5.5%) among the outperformers.

Energy stocks, including Oil Search, Santos and Woodside Petroleum, continued their rally on the back of a rising oil price.

Materials (+4.5%) also had a strong month. A falling iron ore price was offset by gains in other commodities, particularly industrial metals. A number of larger materials companies also released solid Q3 updates during the month.

Global equities

Global equity markets continued to reach all-time highs in October. The MSCI World Index added 1.9% in USD terms; the twelfth consecutive monthly increase. The weakness in the Australian dollar boosted the return to 4.3% in AUD terms.

Markets were buoyed by a combination of solid economic data (including the US GDP growth figures) and strong corporate earnings results in the US and Europe.

There was a market-pleasing election result in Japan, which supported the Nikkei 225 Index (+5.6% in JPY terms). The re-election of Prime Minister Shinzo Abe heartened equity markets, given the likelihood of continued monetary stimulus and a supportive fiscal policy.

The MSCI World Value Index was at (+1.0%) for the eighth month this year. In 2017 to date, growth stocks have outperformed value stocks by 10.2%.

Emerging market stocks also benefited from the increasingly robust outlook for global growth and outperformed their developed counterparts for the ninth month this year, rising 3.5% in USD terms and extending accumulated outperformance to 13.9% since the start of 2017.

Global and Australian Fixed Interest  

The release of weaker inflation data in the US mid-month caused bond yields globally to move lower.

This trend quickly reversed, after comments from the US Federal Reserve suggested a December interest rate hike remains likely.

Towards the end of the month, investors focused on the imminent announcement of a new Chair of the Federal Reserve. The favourite candidate for the role is perceived to be one of the more dovish members on the Board, suggesting the pace of rate rises could be moderate if he is appointed. This outlook saw bond yields globally fall towards month end*

STRUCK BY A SMOOTH CRIMINAL^**

You wouldn’t hand over your money to just anyone. The truth is though, sometimes scammers can seem legitimate and know just what to say for you to break down your barriers.

Technology improvements have allowed scammers to become more sophisticated. Australians lost a combined $23.6 million to investment scams in 2016¹.

So how can you protect yourself from a slick scammer?

To start with, it helps to understand how you could be scammed and what type of scams there are.

According to the Australian Securities and Investments Commission (ASIC), there are three main types of scams².

1. Fictional investment offer

Much like it sounds, the scammer will try to get you to invest in something that doesn’t exist and to take your money. They try to get you in the door by making the investment sound promising. Real investment offer – but your money doesn’t go there

The scammer will contact you about a genuine investment – for example, an initial public offering, and offer you their own way to access it or offer you a limited time discount to access the investment. While it will appear like your money is going towards that investment, it’s just headed straight into the scammer’s bank account.

3. Fake claims to represent a well-known company

The scammer may just lie – or they may have a company that uses a name close to or identical to a reputable business to trick you into thinking they are one and the same. They may have smart websites and brochures too. For example, these days it has become fairly common to see emails claiming to be from your bank.

Here are some tips to ensure you don’t fall for these types of scams:

1. If it sounds too good to be true, it probably is.

If someone is promising you large returns that you couldn’t easily earn elsewhere, think carefully – how are they actually able to generate those returns?

2. Do your research

Get online and research the products. Ask for their ABN and Australian Financial Services License (AFSL) – and if they don’t have this then this is a cause for concern. Check the ASIC website for lists of scam companies, and also check in with scamwatch.gov.au.

3. Reputation might be worth the price

If the investment is genuine – but you’re not sure who the person offering it to you is then it is worth looking at investing through companies that you know are reputable and have the correct licensing to offer you the investments.

4. Diversify and start small

Even genuine investments have risks and it’s worth spreading your money across a variety of investments. Think about the old adage about eggs in one basket – if you are going to lose money, you don’t want it to be everything.

5. Financial advice

If you aren’t sure about an investment, it might be worth speaking to your adviser and asking them for their opinion.

Think you are getting called by a scammer?

Make sure to report it so you can help prevent someone else being scammed – you should also report it if a scammer has taken your money. You can report scams to Scamwatch at https://www.scamwatch.gov.au/report-a-scam.

Cranberry and balsamic glazed ham

You’ll need

• 6kg cooked leg ham
  
• 1 1/2 tablespoons balsamic vinegar
  
• 275g jar cranberry sauce (see note)
  
• Whole cloves, to decorate

Method

Step 1

Place oven shelf in lowest position. Preheat oven to 180°C/160°C fan-forced. Using a small, sharp knife, cut through ham rind 8cm from shank. Run thumb underneath rind to separate from fat. Peel back and remove rind. Score the fat in a diamond pattern (see tip). Press 1 clove in the centre of each diamond to decorate. Place ham on a wire rack in a large roasting pan.

Step 2

Combine cranberry sauce and vinegar in a microwave-safe jug. Microwave on HIGH (100%) for 20 to 30 seconds or until heated through and smooth. Brush half the cranberry mixture over ham. Cover shank end with foil to prevent it burning.

Step 3

Bake, using a pastry brush to baste with remaining cranberry mixture halfway during cooking, for 45 minutes to 1 hour or until glaze starts to caramelise. Serve.

Chocolate Cherry Bars (makes 24 bars)

You’ll need:

• 8 oz quality dark cooking chocolate
  
• 1 cup coconut
  
• 2 small eggs
  
• 200 gram packet mixed glace cherries
  
• 1/2 cup castor sugar
  
• icing sugar
  

Method

Step 1

Chop chocolate roughly. Place in top of double saucepan over hot water and heat gently, stirring until melted and smooth

Step 2

Spread chocolate over base of either a well greased or foil lined 11in x 7 in slice tin.

Refrigerate until firm

Step 3

Beat together eggs and sugar until light and very frothy; gently fold in coconut and chopped cherries. Spread over firm chocolate base

Step 4

Bake in moderate oven for 10-15 minutes until topping is lightly brown and just set

Cool then refrigerate. Before serving, remove foil lining, sprinkle with sifted icing sugar cut into small fingers to serve. Makes approx. 24

Variation: Try also adding a small amount of chopped glace ginger to the topping mix

Mini Christmas Puddings

You’ll need:

• 100g white chocolate melts
  
• 12 Jaffas
  
• 12 Arnott's Royals chocolate biscuits
  
• Spearmint leaves, cut into smaller leaves
  

METHOD

Step 1

Place the white chocolate melts into a heatproof bowl. Microwave on Medium/50% power, stirring every minute until they are fully melted.

Step 2

Spoon the melted chocolate into a sealable plastic bag and snip one corner of the bag to make a piping bag. Pipe enough white chocolate on top of the biscuits, allow to drip down the side to resemble custard flowing over the pudding.

Step 3

Place a Jaffa on top and a small spearmint leaf each side of the Jaffa and secure in the melted chocolate.

Sources: * Colonial First State website, www.colonialfirststate.com.au, November 2017. ** Adapted from the My Design website BT Select, November 2017. 1. ACCC Report Targeting Scams: Report of the ACCC on scams activity 2016, May 2017 2. ASIC Moneysmart  

Disclaimer: Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. 6512bv. 12.17.