January 2013 Economic and Market Review

Positive investor sentiment has continued to drive share markets globally with the key index for
global shares (the MSCI Ex Australia in AUD) rising 4.59% in January and posting an 18.00% return
for the 12 months to 31/01/2013. The Australian share market followed this trend with the top 200
companies my market capitalisation (the ASX 200) rising 4.95% in January and 20.1% for the year to
31/01/2013.

Much of this sharemarket resurgence has been driven by promising signals of continued economic
recovery from the US and China, and a continuation of no more bad news from Europe. Another key
driver has been the weight of money moving to share investments from defensive assets, such as
fixed interest and term deposits, that offer little reward in this low interest rate environment. For
example, investors are shifting from low yielding term deposits and bonds to blue-chip Australian
shares as the income yield alone from these shares is higher than the income generated from the
bond investments. There are some risks to note however, and the key risk is the sustainability of
these market returns.

Although economic risks posed by US, Europe, China, and Japan have significantly reduced
compared to during early to mid 2012 the current market gains are not not being driven by strong
improvements in global growth or company profitability. Take Australia for example where the
questions of whether the non-mining sector can drive the Australian economy in the absence of
mining company investments and super profits persist. The high Australian dollar (AUD) is proving
another barrier for the non-mining sector to support the economy and forcing the Reserve Bank of
Australia (RBA) to reduce interest rates as a means to stop upward pressure on the AUD and drive
consumer spending.

The VIP Investment Committee is mindful of these risks and is closely watching the current reporting
season and economic news from the US, Europe, China, Japan, and Australia. The portfolios at
present are allocated upon the expectation that these market returns will continue, however, there
is a chance that a short term sell-off occurs as investors take profits off the back of some negative
(or not so positive) news at which point the Investment Committee will re-assess the allocation.

 

Important Information:
Value Investment Partners Pty Ltd is a Corporate Authorised Representative (Representative No.: 409849) ABN 72 149 815 707 of Sterling Managed Investments Pty Ltd, Australian Financial Services Licensee (AFSL 340744). This document has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this document is General Advice and does not take into account any person’s investment objectives, financial situation and particular needs. Before making any investment decision based on this advice, you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances.