2010 - the Year of What?

28 Jan 2010

Ever notice how we give names to our years? The Year of the Volunteer or the Year of the Blood Donor, for example. This doesn’t usually happen in the financial sector, unless it’s been a particularly bad year, like the crashes of 1939 or 1987. But financial commentators are already calling 2009 the Year of the Recovery. And this comes hot on the heels of 2008, the Year of the GFC. So what can we expect to call 2010?

To everyone’s relief, 2009 saw a return of some investor confidence and some clawing back of losses since markets bottomed out in March 2009. It also saw the stimulated Australian economy perform better than most of our developed nation peers. Not only did we avoid a recession but we bounced back so strongly that the Reserve Bank started moving interest rates up again to keep a lid on things, especially inflation. As we head cautiously into 2010, the rest of the world is still struggling with the wreckage of 2008.

But we’re not out of the woods yet. There are bound to be a few aftershocks from 2009. At the time of writing there has been a small correction on markets as a result of the US Government announcing tougher laws to control their big banks. This won’t be the only dip we can expect to see over the course of 2010, but the general consensus from Australian economists and other commentators is that we are slowly but surely recovering. 

We have already seen a rebound in consumer and to a lesser degree, business confidence, and this is partly due to the government’s massive stimulus package which started to take effect in 2009 and will flow on into 2010, especially for infrastructure projects. The resurgence in the mining industry will also push things along and the Reserve Bank will be keeping an eye on all of this, with further interest rate rises predicted during the year - possibly as early as February 2010.

The broad trend in shares and other growth assets is likely to remain upward. We are still early in a typical ‘bull market’, earnings growth is likely to be strong and global interest rates are likely to remain low. It has been suggested that a year-end target for the Australian ASX 200 and All Ords indices is 5600. (The All Ords peaked at 6808.2 in October 2007 and ‘bottomed out’ at 3281.5 in February 2009; it’s currently around 4750.)

The Year of the Review

In financial terms, 2010 might be regarded as the Year of the Review, with at least two major enquiries into the superannuation and retirement income system to be finalised shortly.

The Henry Review, chaired by Treasury Secretary Ken Henry, is looking at Australia’s Future Tax System with a major focus on how the three pillars of the retirement income system in Australia can work together:

• The Age Pension
• Compulsory Superannuation Guarantee contributions
• Voluntary Superannuation contributions.

While the review has said it generally supports these three pillars, the levels of government funding allocated to each, and the incentives to use one over the other, are being considered. This may mean changes to income or assets tests, for example. Or it could mean a change to how much can be contributed to super – by you or by your employer.

The Cooper Review, headed by former ASIC deputy, Jeremy Cooper, is focussing on superannuation and includes three phases:

Phase 1: the governance of super funds
Phase 2: the operation and efficiency, including fees and charges and competition
Phase 3: the structure of super funds, including self-managed super funds and defined benefit funds.

Much of the scope of this review is aimed at improving value for money in the superannuation environment for ordinary working Australians.

Whatever title we end up with for 2010, it’s going to be a year where ‘slow and steady’ is probably the best approach for investors. This is not a time for hasty decisions and any decisions you do reach should be made with input from your financial adviser.

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