Amp Capital

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Kylie O'Connor has been promoted the lead role at AMP Capital's real estate division, and she will join the investment firm's leadership group.
Ms O'Connor is currently AMP Capital Real Estate's Chief Operating Officer and Managing Director of Separate Accounts.
She will replace Carmel Hourigan who is leaving the business.
As Head of Real Estate, Ms O'Connor will lead the team managing more than A$28 billion of commercial real estate on behalf of institutional and retail investors across equity and debt investment solutions.
This includes the management of AMP Capital's integrated fund, investment, development and property management platform, as well as its strategic global partnerships.
"Highly regarded by our clients, our team and within the industry, she's ready to lead the next phase of growth for our real estate business," said AMP Capital CEO, Boe Pahari.
"Kylie has a deep breadth of both commercial and real estate investment experience and will bring a strong focus on delivering investment outcomes for our clients. I also value her contribution to the wide and diverse views in the leadership group."
Ms O'Connor joined AMP Capital in 2015 as Fund Manager for AMP Capital Diversified Property Fund, before taking on the role of COO in 2018. She has 25 years' experience in property funds management and has been involved in the delivery of several large development projects on behalf of wholesale investors.
Prior to AMP Capital, she held a number of senior fund management, audit and advisory roles at Lendlease and Arthur Andersen.
"I'm pleased to be appointed to lead this first-class real estate business and join Boe's leadership team. With over 60 years' heritage in managing iconic real estate for local and global investors, we have an excellent foundation of depth of talent, premium assets and great client relationships on which to grow the business," Ms O'Connor said.
"While COVID 19 has created challenges for the industry, we're constantly engaging with tenants, customers and investors to find the right outcome, and I'm confident in our ability to deliver for our clients, our people and our shareholders."
Also announced Luke Briscoe will take on the role as Chief Operating Officer, Real Estate, reporting to Ms O'Connor, where he will oversee the operations of the business while seeking opportunities to enhance the real estate platform.
Mr Briscoe held the position of Managing Director, Office &amp; Logistics for the past five years and as Chief Operating Officer will also lead its circa $10 billion separate accounts business. Ms O'Connor will report to Boe Pahari and join AMP Capital's leadership group effective immediately.
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Kylie O'Connor to lead AMP Capital's real estate division

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<div class="column">Expert Observation by Dr Shane Oliver, head of investment strategy and chief economist of AMP Capital</div>
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<div class="column">As we’ve seen recently growth assets like shares have periods of bad short-term performance versus bonds &amp; cash. But they provide superior long-term returns which is essential to grow retirement savings. It makes sense for superannuation to have a high exposure to them. The best approach is to simply recognise that super and investing in shares is a long-term investment.</div>
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This is an update of a note I wrote last November, but after the recent plunge in shares and the associated ten per cent or so loss in balanced growth superannuation funds through the March quarter, it’s particularly relevant now. When share markets plunge as they did into March the standard questions are: What caused the fall? What’s the outlook? And what does it mean for superannuation? The correct answer to the latter should be“nothing really, as super is a long-term investment and share market volatility is normal.” This may sound like marketing spin. But, except for those who are into trading or are close to or in retirement - shares and super really are long-term investments.
<h2>Super funds, growth assets &amp; compound interest</h2>
Superannuation is aimed (within reason) at providing maximum (risk-adjusted) funds for use in retirement. So typical Australian super funds have a bias towards shares and other growth assets that grow in value with the economy, particularly for younger members, and some exposure to defensive assets like bonds and cash to avoid excessive short-term volatility. These approaches aim to make the most of the power of compound interest which sees returns build on returns over time. The next chart shows the value of a $100 investment in Australian cash, bonds, shares and residential property from 1926 assuming any interest, dividends and rents is reinvested along the way.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_1.jpg" alt="" width="460" height="276">
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As return series for commercial property and infrastructure only go back a few decades I have used residential property as a proxy. Over the period shown since 1926 cash has returned 5.4 per cent per annum, bonds 6.9 per cent pa, property 10.7 per cent pa and shares 10.9 per cent pa. Because shares and property provide higher returns over long periods the value of an investment in them compounds to a much higher amount over long periods. So, it makes sense to have a decent exposure to them when saving for retirement. The higher return from shares and growth assets reflects compensation for the greater risk in investing in them – in terms of capital loss, volatility and illiquidity.
<h2>
But investors don’t have 90 years?
</h2>
But while the above chart covered more than 90 years of returns, our natural tendency is to think very short term. Particularly so in times of uncertainty like now. And this is where the problem starts. On a day to day basis shares are down almost as much as they are up. See the next chart. So, day to day, it’s pretty much a coin toss as to whether you will get good news or bad on shares. But if you just look monthly and allow for dividends, the historical experience suggests you will only get bad news around a third of the time. If you go out to once a decade, positive returns have been seen 100 per cent of the time for Australian shares and 82 per cent for US shares. So while it’s hard given the bombardment of financial news these days it makes sense to look at your returns less because then you are more likely to get positive returns and less likely to make rash decisions based on short term bad news.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_2.jpg" alt="" width="459" height="280">
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This can also be demonstrated in the following charts. On a rolling 12 month ended basis the returns from shares bounce around all over the place compared to the relative stability of cash (and bonds). See the next chart.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_3.jpg" alt="" width="456" height="269">
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However, over rolling ten-year periods, shares have invariably outperformed, although there have been some periods where returns from bonds and cash have done better, albeit briefly.
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Pushing the horizon out to rolling 20-year returns has almost always seen shares do even better, although a surge in cash and bond returns from the 1970s/1980s has seen the gap narrow. Over rolling 40-year periods – the working years of a typical person – shares have always done better.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_5.jpg" alt="" width="465" height="241">
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This is all consistent with the basic proposition that higher short- term volatility from shares - often reflecting exposure to periods of falling profits and a risk that companies go bust - is rewarded over the long term with higher returns.
<h2>But why not try and time short-term market moves?</h2>
The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust, the GFC and maybe in the years ahead the current episode look inevitable and hence forecastable and so it’s natural to think “why not give it a go?” by switching between say cash and shares within your super to anticipate market moves. Fair enough if you have a process and put the effort in. But without a tried and tested market timing process, trying to time the market is difficult. A good way to demonstrate this is with a comparison of returns if an investor is fully invested in shares versus missing out on the best (or worst) days. The next chart shows that if you were fully invested in Australian shares from January 1995, you would have returned 8.5 per cent pa (with dividends but not allowing for franking credits, tax and fees).
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If by trying to time the market you avoided the 10 worst days (yellow bars), you would have boosted your return to 11.7 per cent pa. And if you avoided the 40 worst days, it would have been boosted to 17.1 per cent pa! But this is not easy as many investors only get out after the bad returns have occurred, just in time to miss some of the best days. For example, if by trying to time the market you miss the 10 best days (blue bars), the return falls to 6.3 per cent pa. If you miss the 40 best days, it drops to just 1.9 per cent pa.
The following chart shows the difficulties of short-term timing in another way. It shows the cumulative return of two portfolios.
• A fixed balanced mix of 70 per cent Australian equities, 25 per cent bonds and five per cent cash;
• A “switching portfolio” which starts off with the above but moves 100 per cent into cash after any negative calendar year in the balanced portfolio and doesn't move back until after the balanced portfolio has a calendar year of positive returns. We have assumed a two-month lag.
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Over the long run the switching portfolio produces an average return of 8.6 per cent pa versus 9.9 per cent pa for the balanced mix. From a $100 investment in 1928 the switching portfolio would have grown to $185,869 compared to $595,510 for the constant mix.
<h2>Key messages</h2>
First, while shares and other growth assets go through periods of short-term underperformance relative to bonds and cash, they provide superior returns over the long term. As such, it makes sense that superannuation has a high exposure to them.
Second, switching to cash after a bad patch is not the best strategy for maximising retirement savings and wealth over time as it locks in the loss with no hope of recovery.
Third, the less you look at your investments the less you will be disappointed. This reduces the chance of selling at the wrong time or adopting an overly cautious stance.
The best approach is to simply recognise that super and investing in shares is a long-term investment. The exceptions to this are if you are really into putting in the effort to getting short- term trading right and/or you are close to, or in, retirement.
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Why super and growth assets like shares have to be seen as long-term investments: Shane Oliver

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Expert Observation by Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital
The Australian March quarter Consumer Price Index showed headline inflation rising by 0.3 per cent over the quarter with annual inflation up by 2.2 per cent which was higher than market expectations of a 0.2 per cent quarterly increase or 1.9 per cent over the year.   The RBA’s preferred measure of “core” inflation, as measured by the “trimmed mean” index rose by 0.5 per cent or 1.8 per cent, also above market expectations of a 0.3 per cent increase or 1.6 per cent over the year.   Usually the inflation data is a key component of the Reserve Bank’s policy deliberations but its importance has been reduced (for now) as the impacts of the coronavirus on the economy takes hold.  
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/15_1.jpg" alt="" width="443" height="280"> 
In a pre-coronavirus world, today’s inflation data would have given the Reserve Bank confidence that its low interest rate settings were making inroads into lifting inflation, with underlying inflation showing its strongest quarterly rise since early 2018.
However, this has all changed because from the impacts of COVID-19 and associated shutdowns to economic activity. Inflation is expected to go backwards in the near-term (i.e. deflation) from the impacts of the virus and low inflation could persist for a while if the economic recovery is slower than expected.
The key points from the March quarter inflation data are: 
<ul>
<li>The largest upside surprise was from higher food prices, from drought and bushfire impacts (bushfires increased transport costs for some fresh produce). The largest price rises were in fruit and vegetables (+6.0 per cent) and meat and seafood (+2.05). Covid-19 panic buying was evident towards the end of March for products like rice and pasta which lifted the prices for these items. 
</li>
<li>Tobacco prices rose by 2 per cent from the tobacco tax excise increase.  
</li>
<li>There were less signs of discounting in the March quarter in clothing &amp; footwear but this is likely to be reversed in the June quarter as stores try to increase sales in the current environment. 
</li>
<li>The early signs of Covid-19 impacts were evident in higher prices for non-durable household products (up by 3.4 per cent) with rises for things like toilet paper, soap, hand sanitiser. Most of these increases are unlikely to be sustained as the surge in demand for such items has simply brought spending on them forward. 
</li>
<li>Health costs rose (+1.7 per cent) due to the way the Pharmaceutical Benefits Scheme works, which usually see seasonal rises in prices for pharmaceutical products and in medical and hospital services in the March quarter. 
</li>
<li>A large fall in fuel prices (-6 per cent) from a lower oil price reduced transport costs. Expect even lower fuel prices in the June quarter given the collapse in the oil price over recent weeks. 
</li>
<li>Recreation prices fell by 1.7 per cent (mainly due to holiday travel and accommodation) which is a usual seasonal effect after the peak holiday period in the prior quarter. There were no signs of Covid-19 impacting travel prices because the social distancing restrictions only came into effect in late March and also because the ABS would have measured the cost of travel done in March at the time it was booked which wouldn’t give enough time for price discounts to be evident. 
</li>
<li>Education prices rose by 2.6 per cent from the usual rises in school feels in the March quarter. 
</li>
<li>Insurance and financial services prices were up by 0.7 per cent over the quarter.</li>
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Implications
Looking ahead, June inflation is expected to be negative in Australia, possibly as weak as -2 per cent quarter on quarter or -0.5 per cent year on year which would be the biggest fall in annual consumer prices since a 1.3 per cent decline over the year to the June quarter in 1962.
Petrol prices (in Australia) are already down by around 35 per cent compared to the March quarter, childcare prices will fall sharply as a result of the Government subsidy up until the end of June, rents are declining, many government charges are seeing price freezes or rebates, some non-government education providers are providing discounts, communication costs will decline due to providers offering larger internet plans with no extra costs (recorded as a price fall by the ABS), finance and insurance costs are being cut and retailers are discounting in areas of weak demand.
While there might be some offset from higher food prices given supply constraints, below-capacity economic activity and much higher unemployment will likely keep inflation weak and well below target for several years.Inflationary pressures could rise once economic activity recovers, spare capacity is used up and unemployment falls below full employment levels helped by significant monetary and fiscal stimulus, but this is unlikely to be the case until sometime after 2022. As a result the RBA’s cash rate is likely to be stuck at 0.25 per cent for the next three years at least.
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March quarter inflation higher than expected but irrelevant given the Covid-19 disruption: Shane Oliver

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EXPERT OBSERVER
At its first board meeting for the year the RBA left the official cash rate at 0.75%. Its last easing was back in October and its been on hold ever since.
This was in line with the market’s and our own expectations.
The RBA appears to have taken heart from the drop in the unemployment rate to 5.1% in December and the December quarter inflation results which were in line with its expectations. As a result it has decided to be patient.
What’s surprising though is that it has retained its expectation for economic growth to pick up to around 2.75% this year. Its confidence may reflect the run of better than expected data for retail sales, building approvals and employment over the last month or so.
But the problem is that all of this has related to late last year and since then business and consumer confidence has weakened further not helped by the bushfires with the coronavirus posing a new threat.
While we mostly agree with the RBA that the drag on growth from the bushfires and the coronavirus will be short term and temporary, it is likely to be more significant than the RBA is allowing for. And the risk is that it will linger longer particularly given the threat that both pose to tourism.
As a result we continue to see economic growth being constrained to around 2% this year, well below the RBA’s 2.75%. This in turn is likely to see unemployment drift up a bit, underemployment remains very high and wages growth and underlying inflation remain lower for longer.
All of which will mean that little if any progress towards the RBA’s full employment and inflation targets is likely this year.
As such, we continue to see the RBA cutting rates again in the months ahead ultimately taking the cash rate down to 0.25% by mid-year, unless fiscal policy is eased significantly.
In this regard it is worth noting that the RBA retains an easing bias, with its post meeting Statement noting that “It [the RBA Board] remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital
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The cash rate will still fall in the months ahead: Shane Oliver

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AMP Capital’s Real Estate business has been realigned along specialist sectors, with new and expanded roles taken up by its leadership team.
It includes the creation of two new managing director roles for retail and office and logistics, accountable for fund, investment, property and development management for their specialist sectors.
Brett Williams has been appointed to the new role of managing director, retail.
Currently fund manager for the AMP Capital Diversified Property Fund (ADPF), Williams will lead AMP Capital’s entire retail platform including the shopping centres asset management platform as well as the wholesale pooled funds with retail exposure, the AMP Capital Shopping Centre Fund (ASCF), as well as ADPF.
Mark Kirkland will work closely with Williams under the new title of Head of Retail and will continue to be responsible for leading the retail asset management platform including the delivery of the retail development pipeline.
Luke Briscoe will take on the new and expanded role of Managing Director, Office &amp; Logistics.
Briscoe will be accountable for the whole office and logistics platform including the AMP Capital Wholesale Office Fund (AWOF), and the investment, property, leasing and development management functions, as well as of some of real estate’s shared functions including Sustainability, EWHS and Asset Technology which work across the entire office, logistics and retail business platform.
Other changes to the Real Estate Leadership team include Merran Edwards appointed to the new role of Chief Financial Officer, Real Estate, where she will lead the finance, global strategy, business planning, strategic partnerships and risk functions.
Kylie O’Connor’s COO role will shift to be fund management focused which will see her taking on fund operations and governance, while leading one of the largest separate account businesses in the market, as well as private investor funds. To reflect this change, her title will change to Chief Operating Officer &amp; Managing Director, Separate Accounts.
John Dynon will take on the role of Head of Origination &amp; Capital where he will be accountable for sourcing new opportunities and placing capital for new and existing clients as well as overseeing the real estate transactions and distribution teams.
Global Head of Real Estate Carmel Hourigan said the new integrated sector specialisation structure and bolstered client focus will best enable AMP Capital to deliver for its clients and achieve its growth strategy.
As the overall business structure is now sector aligned, there have been some leadership changes and the role of Head of Real Estate Funds Management held by Chris Judd is no longer required.
Judd has had a distinguished career at AMP Capital and made a significant contribution to the business over the past 13 years. 
He has played a fundamental role in the governance, growth and management of the pooled fund and New Zealand portfolios and will work closely with the team on this transition and remain as a director on Precinct Properties until early 2020.
These changes will be effective 16 August 2019, and all of the above roles on the Real Estate Leadership team will report to Global Head of Real Estate &amp; Chief Investment Officer, Carmel Hourigan.
AMP Capital is one of the largest and most experienced direct real estate fund managers in the Asia Pacific, with more than $28 billion in funds under management as at 30 June 2019.
AMP Capital offers institutional and private investors access to real estate equity and debt opportunities globally through a range of wholesale funds and separately managed solutions.
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AMP Capital repositions real estate business along specialist sectors

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EXPERT OBSERVER
2017 was a great year for well diversified investors – returns were solid (balanced super funds returned around 10%) and volatility was low.
So optimism was high going into 2018 but it turned out to be anything but great for investors who saw poor returns (average balanced super funds look to have lost around 1-2%) and volatile markets.
As a result, and in contrast to a year ago, there is much trepidation about the year ahead.
Having just written lists for Christmas presents and New Year resolutions, I was again motivated to provide a summary of key insights and views on the investment outlook in simple point form.
Five key things that went wrong in 2018 In 2018 global growth was good, profits were up, inflation was benign and monetary conditions were relatively easy. It should have been good for markets.
There were five reasons it wasn’t: 
• Fear of the Fed – the Fed didn’t really surprise but investors became increasingly concerned that it would overtighten. This reached a crescendo in late December.
• US dollar strength – a rising US dollar is a defacto global monetary tightening and this weighed particularly on emerging countries and US earnings expectations.
• Geopolitics – President Trump’s trade war hit confidence from March and morphed into fears of a broader Cold War with China. Other worries around Trump (with ongoing turmoil in his team, fears of impeachment as the Mueller inquiry progresses and a return to divided government) along with the populist government in Italy also weighed.
• Global desynchronisation – US growth was strong, but it slowed everywhere else.
• In Australia, tightening credit conditions (with fears of a credit crunch due to the Royal Commission) and falling house prices weighed on banks &amp; growth expectations.
 Five lessons from 2018:
• Global growth remains fragile with post GFC caution lingering. This and technological change are helping to keep inflation down. Trade war fears didn’t help. Amongst other things this means central banks need to tread carefully in normalising monetary policy.
• Investors continue to find it easy to fear the worst – this has been evident in three major circa 20% sharemarket declines since the GFC – in 2011, 2015-16 and now 2018. • Geopolitics remains a significant driver of markets and economic conditions.
• Government bonds remain a great diversifier – they rallied when shares plunged.
• Stuff happens – history tells us markets have periodic setbacks. 2018 was just another example.
 Five big picture themes for 2019:
• Policy pause and stimulus – the turmoil in markets and threat to global growth is likely to drive a policy response early this year with the Fed pausing, China providing more stimulus and the ECB providing cheap bank financing. There may also be some fiscal easing in Europe.
• While global growth is likely to weaken a bit further in the coming months, it’s likely to stabilise and resynchronise as the year progresses helped by policy stimulus, an easing in the $US and by the late 2018 plunge in energy costs.
• Global inflation is likely to remain benign helped by the 2018 growth slowdown and fall in energy costs. In this sense the malaise of 2018 by forestalling inflation and hence monetary tightening has arguably helped extend the economic cycle. The US remains most at risk on the inflation front though given its still tight labour market.
• But expect volatility to remain high given the lower level of spare capacity in the US and ongoing political risk.
• Australian growth is expected to be sub-par as the housing downturn detracts 1-1.5 percentage points or so off growth.
 Key views on markets for 2019:
• Global shares could still make new lows early in 2019 (much as occurred in 2016) and volatility is likely to remain high but valuations are now improved and reasonable growth and profits should see a recovery through 2019 helped by more policy stimulus.
• Emerging markets are likely to outperform if the $US is more constrained as we expect.
• After a low early in the year, Australian shares are likely to do okay, recovering to around 6000 or so by year end.
• Low yields are likely to see low returns from bonds, but they continue to provide an excellent portfolio diversifier.
• Unlisted commercial property and infrastructure are likely to see slower returns over the year ahead. This is likely to be particularly the case for Australian retail property.  
• National capital city house prices are likely to fall roughly 5% led again by 10% or so price falls in Sydney and Melbourne off the back of tight credit, rising supply, reduced foreign demand &amp; possible tax changes under a Labor Governmen
• Cash and bank deposits are likely to provide poor returns as the RBA cuts the official cash rate to 1% by end 2019.
• Beyond any near-term bounce as the Fed moves towards a pause on rate hikes next year, the $A is likely to fall into the $US0.60s as the gap between the RBA’s cash rate and the US Fed Funds rate will still likely push further into negative territory as the RBA moves to cut rates.
Six things to watch:
• The US trade war – while it may now be on hold thanks to negotiations with China, Europe and Japan these could go wrong and see it flare up again. US/China tensions generally pose a significant risk for markets.
• US inflation and the Fed – our base case is that US inflation remains around 2% enabling the Fed to pause/go slower, but if it accelerates then it will mean more aggressive tightening, a sharp rebound in bond yields and a much stronger $US which would be bad for emerging markets.
• Global growth indicators – if we are to be right, growth indicators need to stabilise in the next six months.
• Chinese growth – a continued slowing in China would be a major concern for global growth and commodity prices.
• Politics – political risks abound in the US with the Mueller inquiry getting ever closer to President Trump and a return to divided government leading to risks around raising the debt ceiling and Trump adopting more populist policies. In Europe the main risks are around Brexit, Italy and the EU parliamentary elections in May. Australia’s election risks are more interventionist government policy and tax changes.
• The property price downturn in Australia – how deep it gets and whether non-mining investment, infrastructure spending and export earnings are able to offset the drag from housing construction and consumer spending.
Three reasons why global growth is likely to be okay Global growth indicators are likely to weaken further in the next few months but then stabilise, resulting in okay global growth of around 3.5% this year:
• Global monetary conditions are still easy. While the flattening US yield curve is a concern all other measures of monetary policy show it to be easy – particularly globally.
• Market volatility and associated uncertainty are likely to drive a policy response with the Fed pausing, other central banks easing and possible fiscal stimulus in Europe.
• We still have not seen the excesses – massive debt growth, overinvestment, capacity constraints or excessive inflation – that normally precede recessions.
Three reasons why Chinese growth won’t slow much:
• The Chinese Government’s tolerance for a sharp slowing in growth is low given the risk of social instability it may bring.
• Monetary and fiscal policy is being eased.
• In the absence of much lower savings (the main driver of debt growth), rapid deleveraging would be dangerous, and the Chinese Government knows this.
Four reasons Australia still won't have a recession:
• A downturn in the housing cycle and its flow on to consumer spending will detract around 1 to 1.5 percentage points from growth, and growth is likely to be constrained to around 2.5-3%, but recession is still unlikely
• The growth drag from falling mining investment (which was up to 2 percentage points) has faded.
• Non-mining investment &amp; infrastructure spending are rising. • Interest rates can still fall further, and the RBA is expected to cut the cash rate to 1%.
• The $A will likely fall further providing a support to growth.
Three reasons why the RBA will cut rates this year:
• The housing downturn will constrain growth to at or below potential.
• This will keep underemployment high, wages growth weak and inflation lower for longer.
• The RBA may ultimately want to prevent the decline in house prices getting so deep it threatens financial instability. Three reasons why a grizzly bear market is unlikely Shares could still fall further in the short term given various uncertainties resulting in a brief (“gummy”) bear market before recovering. But a deep (or “grizzly”) bear (where shares fall 20% and a year after are a lot lower again) is unlikely:
• A recession is unlikely. Most deep grizzly bear markets are associated with recession.
• Measures of investor sentiment suggest investors are cautious, which is positive from a contrarian perspective.
• The liquidity backdrop for shares is still positive. For example, bank term deposit rates in Australia are around 2% (and likely to fall) compared to a grossed-up dividend yield of around 6% making shares relatively attractive.
Seven things investors should allow for in rough times:
Times like the present are stressful for investors. No one likes to see their wealth fall and uncertainty seems very high. I don’t have a perfect crystal ball, so from the point of sensible longterm investing the following points are worth bearing in mind.
• First, periodic sharp setbacks in share markets are healthy and normal. Shares literally climb a wall of worry over many years with periodic setbacks, but with the long-term trend providing higher returns than more stable assets. The setbacks are the price we pay for the higher long-term return from shares.
• Second, selling shares or switching to a more conservative strategy after a major fall just locks in a loss. The best way to guard against selling on the basis of emotion is to adopt a well thought out, long-term investment strategy.
• Third, when growth assets fall they are cheaper and offer higher long-term return prospects. So, the key is to look for opportunities that pullbacks provide.
• Fourth, while shares may have fallen in value, the dividends from the market haven’t. The income flow you are receiving from a diversified portfolio of shares remains attractive.
• Fifth, shares often bottom at the point of maximum bearishness. So, when everyone is negative and cautious it’s often time to buy.
• Sixth, turn down the noise on financial news. In periods of market turmoil, the flow of negative news reaches fever pitch, which makes it very hard to stick to a well-considered, long-term strategy let alone see the opportunities.
• Finally, accept that it’s a low nominal return world – low nominal growth and low bond yields and earnings yields mean lower long-term returns. This means that periods of relative high returns like in 2017 are often followed by weaker years.
DR SHANE OLIVER is the Head of Investment Strategy and Chief Economist for AMP Capital
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Four reasons Australia still won't have a recession in 2019: Shane Oliver

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EXPERT OBSERVATION
This month’s RBA Board meeting provided nothing new from the RBA.
Interest rates were left on hold for the 28th meeting in a row. The RBA sees the global outlook as being reasonable but with increased downside risks.
It still sees the labour market as strong  and expects to see some lift in wages growth. It sees domestic growth picking up to around 3% by year end but with uncertainty remaining around consumer spending.
It sees the adjustment in house prices in Sydney and Melbourne continuing. And it continues to expect underlying inflation to pick up over the next couple of years.
A speech by RBA Governor Lowe tomorrow and the Minutes from the meeting in two weeks’ time will likely provide more colour around how the RBA sees the risks – but they are likely to portray them as remaining balanced, implying a neutral bias on rates.
Our view is that RBA is underestimating the impact of the housing downturn on the economy – particularly in terms of its impact on consumer spending – and as a consequence we still see weaker growth and lower inflation than the RBA is forecasting.
Consistent with this we have seen a run of soft data this year and corporate profit results reflecting difficult conditions particularly around the housing and consumer sectors.
December quarter GDP growth to be released tomorrow looks like being soft again albeit with public spending saving the day but possibly not enough to prevent a “per capita” recession, ie, two quarters in a row with GDP per person going backwards.
As a result our view remains that the RBA will cut the cash rate to 1% by year end.
SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital 
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AMP Capital's view remains that the RBA will cut the cash rate to 1% by 2020: Shane Oliver

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EXPERT OBSERVER
Consumer confidence fell 3% in September and is now back to around its long term average according to the Westpac/MI consumer survey.
This followed a fall in business confidence in August according to the NAB business survey.
While other factors may also be impacting, including ongoing news of falling home prices, it’s likely that political turbulence in Canberra has been a driver of the fall in confidence, just as the election of the LNP Coalition in 2013 with the hope of political stability after the Rudd/Gillard/Rudd years provided a boost to confidence.
If sustained this will be a drag on consumer spending and supports the case that households won’t be comfortable continuing to run down their saving rate.
<img src="https://www.urban.com.au/images/2018/9/28/download.png" alt="">
Source: Westpac/MI, NAB, AMP Capital
The September consumer survey also showed that households remain cautious about shares, superannuation and real estate as the wisest place for savings but continue to like paying off debt and bank deposits (despite low interest rates).
All of which is consistent with households remaining cautious in their investments, which is a positive from a contrarian perspective although (apart from real estate) this has been the case ever since the GFC.
<img src="https://www.urban.com.au/images/2018/9/28/download%201.png" alt="">
Source: Westpac/MI, AMP Capital
The soft readings on consumer and business confidence are consistent with our view that the RBA will be on hold for a long time yet and that it’s premature to rule out the next move in rates as being down.
Shane Oliver is the Head of Investment Strategy and Chief Economist for AMP Capital 
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Consumers remain cautious, believing real estate isn't the wisest place for savings: Shane Oliver

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Introduction
For the last two calendar years the Australian dollar has defied our expectations for weakness. But after hitting $US0.81 in January it’s been trending down as US interest rates fell below the Australian cash rate, the threat of a US-driven trade war increased and it recently broke below a short-term range around $US0.74 and fell as low as $US0.72 on fears of contagion to global growth from a crisis in Turkey. This note looks at outlook for the $A and why it makes sense for Australian-based investors to hold a decent exposure to foreign exchange.
What are the fundamental drivers of the $A?
The Australian dollar tends to move in line with relative price differentials over the long term. This is the theory of purchasing power parity (PPP) according to which exchange rates should equilibrate the price of a basket of goods and services across countries – see the next chart.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/8/21/AMP%201.jpg" alt="">
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If over time Australian inflation and costs rise relative to the US, then the value of the $A should fall relative to the $US to maintain its real purchasing power and competitiveness. But in the short to medium term, swings in the $A are largely driven by swings in the prices of Australia's key commodity exports and the terms of trade (when they go up the $A tends to rise and often been significant divergences. This has notably been the case lately with the RBA hiking in 2009 (as the mining boom returned) and the Fed holding and the RBA continuing to cut in 2016 even though the Fed had commenced a tightening cycle. While US growth is running well above potential and has largely used up spare capacity, Australian growth has been running below potential and there is plenty of spare capacity. This is evident in the combination of unemployment and vice versa) and relative interest rates such that a rise in US rates relative to Australian rates makes it more attractive to park money in the US and hence pushes the $A down.
Why the $A is likely to fall further
At current levels, the Australian dollar at around $US0.7350 is around where it should be on a long-term purchasing power parity basis - see the first chart. But the $A rarely spends much time at the purchasing power parity level and tends to be pushed to extremes above and below it.
Our view remains that the downtrend in the $A that started in 2011 when the iron ore price peaked at over $US190/tonne has further to go. The main reason is the interest rate differential in favour of the $A is likely to go further into negative territory as the Fed continues to hike rates and the RBA remains on hold. This is making it relatively less attractive to park money in Australia putting downwards pressure on the $A. The Fed is on track to hike rates again next month as the US economy has continued to strengthen highlighted by a very tight jobs market. This will take the Fed Funds rate to a range of 2- 2.25%. If the RBA leaves rates on hold at 1.5%, as is almost certain, then the gap between Australian and US official interest rates will fall to -0.5-0.75%, from a whopping +4.5% in 2011. Periods of a low and falling official interest rate differential between Australia and the US usually see a low and falling $A.
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While some think the RBA just follows the Fed there was often been significant divergences. This has notably been the case lately with the RBA hiking in 2009 (as the mining boom returned) and the Fed holding and the RBA continuing to cut in 2016 even though the Fed had commenced a tightening cycle. While US growth is running well above potential and has largely used up spare capacity, Australian growth has been running below potential and there is plenty of spare capacity. This is evident in the combination of unemployment and underemployment in the US running about as low as it ever gets whereas in Australia it’s about as high as it ever gets.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/8/21/AMP%203.jpg" alt="">
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While there are some positive signs in Australia with investment picking up, strong export volumes and strong employment growth, uncertainty remains high around the housing sector and consumer spending. Wages growth and inflation also remain very low so the RBA is likely to be on hold for a long while yet as the Fed continues to hike. Given falling home prices in Sydney and Melbourne a rate cut cannot be ruled out if it threatens overall growth and inflation.
Our base case is that solid global growth will support commodity prices – particularly iron ore and coal – and that this will provide a floor for the $A in the high $US0.60s. However, history suggests we are still in a commodity price bear market after last decade’s surge in prices, the recent 20% or so plunge in metal prices is a warning of weakness and there are threats to emerging world growth from a rising $US, a potential contagion from Turkey, slower growth in China and from US trade policy.
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In the very short term the Australian dollar is oversold and this along with speculative short positions warns of a bounce higher. However, beyond this our assessment is that the $A has further to fall and will likely reach $US0.70 by year end.
What does it mean for investors?
With the risks skewed towards more downside in the value of the $A, there are several implications for investors.
First, there remains a strong case to maintain a decent exposure to offshore assets that are not hedged back to Australian dollars. A decline in the value of the $A boosts the value of an investment in offshore assets denominated in foreign currency by one for one. This can be seen in relation to international equity returns in the next table. The first column shows the return from global shares in local currency terms; the second shows the return in Australian dollars (if foreign currency exposures are not hedged back to Australian dollars); the third column shows the difference, which is the change in the $A on a weighted basis; and the final column shows the return to global shares if hedged back to Australian dollars.
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When the $A rises as it did last year it reduces returns from international shares for an unhedged investor. But when the $A falls as was the case in 2005, 2008, 2013, 2014 and 2015 it boosts the value of global assets and hence the return from global shares for an unhedged investor.
Furthermore, when Australian interest rates are above global rates, investors are “paid” to hedge their foreign currency exposure back to Australian dollars. As can be seen in the last column the return from global shares when hedged back to Australian dollars has been higher than the local currency return because hedging investors receive the difference between Australian and foreign rates. However, with Australian rates falling versus global rates the incentive to hedge is falling.
Second, if the global outlook turns sour, having an exposure to foreign currency provides protection for Australian investors as the $A usually falls in response to threats to global growth. As can be seen in the next chart there is a rough positive correlation between changes in global shares in local currency terms and the $A. Major falls in global shares associated with the emerging market/LTCM crisis in 1998, the tech wreck into 2001, the GFC, the Eurozone crises and the 2015-16 global growth scare saw sharp falls in the $A. This has been evident this year with worries about a trade war and Turkey weighing on the $A. So being short the $A and long foreign exchange provides good protection against threats to the global outlook.
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Finally, continuing weakness in the $A will be positive for Australian sectors that compete internationally like tourism, higher education, manufacturing, agriculture and mining.
Dr Shane Oliver Head of Investment Strategy and Chief Economist AMP Capital
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Why the A$ is likely to fall further: Shane Oliver

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AMP Capital announced new appointments in its real estate business, including a new role focused on growing its real estate capabilities in international markets.
Kylie O’Connor has been appointed Chief Operating Officer for Real Estate, responsible for AMP Capital Real Estate’s group-wide functions of finance, strategy, research, governance, risk and compliance, sustainability, business platforms and corporate marketing and communications.
Currently Fund Manager for AMP Capital Diversified Property Fund (ADPF), AMP Capital’s largest pooled real estate fund.
To continue to leverage the strengths of AMP Capital’s real estate capabilities globally, Merran Edwards has been appointed to the new role of Head of International Strategy, Real Estate. 
Merran Edwards joined AMP Capital in March 2016 as Executive Manager, Origination and soon after was appointed to the role of Head of Corporate Portfolio Strategy. 
Luke Briscoe, as Managing Director Office &amp; Industrial, will assume a broader role with accountability for office and mixed-use development. This change aligns with AMP Capital’s integrated management model and includes the delivery of office development including the Quay Quarter Sydney project.
AMP Capital Global Head of Real Estate Carmel Hourigan said she was delighted to announce these appointments to her leadership team, and Briscoe’s expanded role.
“I’m confident these changes support our continual focus on delivering outstanding investment experiences and our aspiration to maximise opportunities for our clients. The changes align to our ambitious international and domestic growth strategy and also demonstrate the strong talent pipeline and succession planning of our people,” Hourigan said.
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