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Investment Portfolio Monthly Report – March 2014

Economic Review

At its meeting on 1 April, the Reserve Bank of Australia decided to leave the Cash Rate unchanged at 2.50% for the eighth 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. Employment increased by 47,300 to 11,530,800 in February and with the Participation Rate increasing by 0.2% to 64.8%, the Unemployment Rate remained at 6.0%. The seasonally adjusted estimate for Dwellings Approvals fell 5.0% in February following a rise of 6.9% in the previous month. The seasonally adjusted estimate for Retail Sales rose 0.2% in February following a rise of 1.2% in January and a rise of 0.7% in December. The Australian Dollar strengthened by 3.1% against the US Dollar during March to close at 0.9221. The A$ has strengthened by 5.2% against the US$ since the end of January and as the RBA noted at its April meeting, remains high by historical standards.

In the United States, Nonfarm Payroll Employment increased by 175,000 in February, and the Unemployment Rate was little changed at 6.7%. Inflation remained subdued with the Consumer Price Index increasing 0.1% in February on a seasonally adjusted basis. Over the last 12 months, CPI increased by 1.1% seasonally adjusted.

Real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2013, thereby increasing for three consecutive quarters. Recent survey-based confidence indicators are consistent with continued moderate growth in the first quarter of this year. Inflation remained low with the Consumer Price Index increasing 0.5% over the 12 months ended March.

In March, China’s PMI was 50.3%, a slight increase of 0.1% month-on-month and the first rise since last November. The Consumer Price Index increased by 2.0% year-on-year in February.

Strategy

Mining investment is set to decline significantly over the next 18 months and even though there are some positive signs from the non-resource sectors of the economy, we expect economic growth in Australia to remain below trend for some time to come and for unemployment to increase. 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.

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