1. Investing in interesting times
Brian Parker CFA
Chief Economist

2. Main messages Global growth: as good as it gets?
Australia: hope springs eternal on business investment, but consumer spending likely to remain very subdued
Value is difficult to find in publicly traded markets
Unlisted assets still offer attractive returns, diversification benefits..
..but even here, prospective returns have been compressed
Geopolitics: as good as it gets (and it can get worse!)

3. World economy: little reason to expect a recession soon
Source: IMF Fiscal Monitor.
*Change in the cyclically adjusted primary budget balance from year ago for G20 economies.
Source: Bloomberg. #No of standard deviations from pre-GFC average.

4. Credit is still flowing
Source: Datastream, Sunsuper

5. Credit is still flowing
Source: Datastream, Sunsuper

6. But debt levels are still a constraint on world growth..
Source: Sunsuper, Datastream, Bank for International Settlements, IMF world Economic Outlook Database

7. ..and demographic trends point to lower long-run potential growth
Labour force growth slowing almost everywhere
Change
Australia
1.8
1.0
-0.8 US
0.6
0.5
-0.1
Eurozone
-0.2
Japan
-0.6
-0.4 UK
0.9
0.4
-0.5
Canada
1.3
-0.7
Switzerland
0.2
-1.1
Korea
1.1
China
-0.3
India
1.4
0.0
Indonesia
1.6
Brazil
-1.0
Mexico
2.3
South Africa
Total
Source: Datastream, Sunsuper, International Labour Organisation

8. Growth has been strong enough to lower unemployment rates
Source: Datastream, Sunsuper

9. Excess capacity is being used up: US UK facing greatest inflation risks?
Source: Datastream, IMF World Economic Outlook. *Difference between actual and potential GDP
as estimated by the IMF.

10. G4 Inflation
Source: Datastream, Sunsuper

11. ..but wage pressures are hard to spot
Source: Datastream, Sunsuper

12. Just how fast is China growing?
Source: Sunsuper, Datastream #Based on electricity production & consumption,
total freight volumes, and loan growth.

13. What about Australia?
Plenty of positives.. Strong export volumes Signs of recovery in non-mining investment Credit is growing – interest rates aren’t holding anyone back! Housing construction activity very strong Stronger export commodity prices
but…
Depends on where you sit: NSW/Vic vs WA/Qld?
Housing activity might have already peaked
Labour market – reasonable jobs growth, but plenty of underemployment
Very weak wages growth
Household debt too high?
Housing affordability – just how overvalued is Australian residential property?

14. Australia: still plenty of slack in the labour market?
Source: Sunsuper, Datastream. *Unemployment plus
employed persons involuntarily working less than their desired hours.

15. Australia: how long can consumers hang in there?
Source: Datastream, Sunsuper

16. Australia: another mining construction boom highly unlikely
Source: Datastream, Sunsuper

17. Iron ore: heaps of the stuff sitting on Chinese ports?
Source: Bloomberg, Sunsuper

18. Has housing activity already peaked?
Source: Datastream, Sunsuper

19. Australian property overvalued? Depends on where you sit!
Source: Demographia International Housing Affordability Survey Data as at Q

20. Investment prospects: where are returns going to come from?
Equities aren’t cheap..
Our managers prefer Europe and Asia over the US
Emerging share markets still relatively attractive
Sovereign bond returns likely to be disappointing..
But still opportunities in investment grade credit
Still opportunities in alternatives – carefully selected hedge funds, unlisted assets..
..but even here return potential has been compressed

21. Global bond yields still close to historic lows
Source: Datastream

22. Global fixed income – credit opportunities?
Source: Datastream, BofA Merrill Lynch, Barclays

23. Equity market valuations
Source: Sunsuper, Datastream, MSCI

24. Australian banks among the most expensive in the world?
Source: Sunsuper, Datastream

25. The geopolitical thermometer?
1950s
Now

26. What the world should have been more worried about in the 1990s?
Post Cold-War Russian resentment
The fundamental fragility of the European experiment
The rise of Islamic extremism
Climate change
Income inequality
Financial stability and regulation

27. Income inequality
Income share of the top 1% has risen almost everywhere
Source:

28. Wealth inequality Personal wealth share of the top 1%
Source:

29. Brexit Implications

30. Main messages Global growth: as good as it gets?
Australia: hope springs eternal on business investment, but consumer spending likely to remain very subdued
Value is difficult to find in publicly traded markets
Unlisted assets still offer attractive returns, diversification benefits..
..but even here, prospective returns have been compressed
Geopolitics: as good as it gets (and it can get worse!)