2014 was another good year for investors despite slowing economies, recessions, war in the Middle East, fears of deflation in Europe and of rate hikes in the US.
All the major asset classes generated positive returns and beat inflation and cash, like in 2012 and 2013. Prices of housing and direct commercial properties were also stronger this year, driven by cheap debt and foreign buying.
Shares had a good year globally, driven by low interest rates and cost-cutting. Bonds also did well globally, with yields falling across the board in almost all countries as investors chased yield in a low-yield world as a result of record low interest rates, money-printing and asset-buying by central banks.
The local stock market had a strong last couple of weeks but ended up just 1% for the year, or 5% including dividends. Price declines in bulk commodities and most metals sent most mining share prices down for the year.
Term deposit rates fell all year with the declines in the underlying yield curve, and also because banks have been borrowing more cheaply from foreign debt markets once again. The RBA’s target cash rate has been at a record low 2.5% since August of last year.
In 2014 the AUD fell against the US dollar and most Asian currencies but it rose against the Euro and Yen which were weakened by central bank asset buying and money printing. The exchange rate story for the year 2014 has been the surging the US dollar against everything else, especially its 12% rise since June providing significant upside for unhedged portfolios.