Market Update - April 2017

Market Commentary
April 2017

April saw rising geopolitical tension across the globe, with North Korea continuing to defy UN sanctions on nuclear tests and the US launching a missile strike against a Syrian airbase on reports of controversial chemical weapons being used by the Russian-backed Syrian President Bashar al-Assad. These events weighed on markets early in the month, and were further compounded by the decision of British Prime Minister Theresa May to call on a snap general election, which saw the UK market fall sharply. After a poor start, market sentiment improved following the first round of French election which saw the pro-growth presidential candidate Emmanuel Macron leading the election polls, with the MSCI France Index surging over 4% in a single day, ending the month 3.6% higher. The improvement in market sentiment was felt beyond Europe, with the MSCI World Index rising 1.4% in the day following the election and continuing to rise towards the end of the month.

In the US, the release of minutes from the Federal Reserve Board of Governors March meeting indicated that most members expect the central bank to reduce their $4.5tn balance sheet over the next few years, while continuing to gradually tighten monetary policy towards interest rate normalisation. However, there is a growing divergence between promising sentiment related indicators (sometimes referred to as ‘soft data’) and weaker hard, economic data. Towards the end of the month, the Trump administration released a one-page broad tax reform plan, which claims to be the biggest tax cut in US history, reducing the corporate tax rate from 35% to 15%.

Business sentiment continued to strengthen across Australia, with the NAB Business Survey reporting that business conditions had reached levels not achieved since the global financial crisis. Annual headline inflation increased to 2.1% in March, falling within the Reserve Bank of Australia’s target of 2-3% for the first time in two years.

The investment returns of the major markets for one and three months and financial year to 30 April 2017 are summarised below.

Market Performance - 30 April 2017

Month

Quarter

FYTD

Australian Equities

1.0%

6.6%

16.8%

Australian Property (Unlisted)*

0.5%

3.1%

9.4%

Australian Property (Listed)

2.6%

7.5%

-0.2%

Overseas Equities (Hedged into AUD)

1.3%

5.7%

18.8%

Overseas Equities (Unhedged into AUD)

3.6%

7.2%

15.2%

Emerging Markets (Unhedged into AUD)

4.3%

9.7%

18.8%

Australian Bonds

0.8%

1.4%

0.0%

Overseas Bonds (Hedged into AUD)

0.7%

1.7%

0.0%

Cash

0.1%

0.4%

1.5%

Australian Dollar vs. US Dollar

-2.0%

-1.5%

0.4%

Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays
*Estimate at 10/5/2017

The Australian share market as measured by the S&P/ASX300 Accumulation Index rose 1.0% in April. Small Cap stocks fell 0.3% for the month, while Large Cap stocks (1.0%) performed in line with the broader market. Industrials (4.1%), IT (3.5%) and Healthcare (3.4%) outperformed, while Telecommunication Services (-9.5%) and Consumer Staples (-2.5%) were the worst performing sectors.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.3% over the month. The Australian dollar depreciated against most developed market currencies in April, which resulted in a return for unhedged overseas equities of 3.6% (in AUD). In developed markets, France (3.6%) and Switzerland (3.3%) outperformed the broader market, while the UK (-1.3%) and Canada (0.4%) underperformed. The MSCI Emerging Markets Index (4.3%) outperformed unhedged developed markets.
Both Australian and global bonds delivered positive returns in April, offsetting the negative returns in the early part of the financial year.