Calendar year 2017 proved to be a banner year for financial markets with equities in particular delivering excellent returns for investors. Amongst developed markets, the US surged 22% on the back of an improving economy, growing corporate profits and pro-business policies delivered by the Trump administration. Despite the gradual reduction in monetary accommodation including interest rate increases by the Federal Reserve, the market hardly missed a beat despite an often-turbulent political landscape.
Elsewhere the Japanese market advanced a healthy 19% boosted by unabated QE, while European markets were a little more subdued with Germany up 12.5% and France up 11.7% as the strengthening EUR hampered export-oriented industries.
In the UK the market posted a credible 11.9% return as the UK grappled with the difficult task of exiting the EU.
The Australian market advanced 11.8% largely due to the burgeoning resource sector which rose 25.9% due to strength in bulk commodity and energy prices, while the more domestically focused industrial sector scratched out a 9% return.
As expected, returns were more subdued for defensive assets with Australian bonds returning 3.7% and bank bills 1.7%.
The $A was stronger over the year gaining 7.7% against the $US largely due to stronger commodity prices offsetting the negative impact of a narrowing interest rate gap with the US. The RBA was inactive for the whole year, leaving the cash rate unchanged at 1.5%.
By the end of the year there were signs of a correction in residential property prices especially in Sydney following the implementation of stricter lending controls for investment loans implemented by APRA earlier in the year.