The markets were predominantly determined yet again by central bank policy decisions with both the US and European central banks making announcements in December. Crude Oil also remained a key market mover during December, down approximately 9%, as The Organization of the Petroleum Exporting Countries (OPEC) agreed to keep its production ceiling unchanged at 30 million barrels per day.
The US markets retreated in December, ending the month 1.7% lower but 1.3% higher for the calendar year. The US Federal Open Market Committee (FOMC) delivered a long awaited 25bps increase in interest rates, which was the first rate rise in 9 years.
The Australian market sold off initially in December but rallied during the second half of the month. The Reserve Bank of Australia left interest rates on hold at 2.0%, citing a weakening commodity sector and moderating housing demand in Melbourne and Sydney.
European markets performed poorly over the month with the MSCI All Country Europe Index (unhedged in AUD) falling 3.1%. Markets reacted positively to Mario Draghi’s announcement to boost the European Union’s Quantitative Easing (QE) program early in December, however the announcement fell short of market expectations. Asian equities were down over December particularly in Japan as the Nikkei retracted by 4.9%.
The investment returns of the major markets for one month, one quarter and financial year to 31 December 2015 are summarised below.
Australian equities as measured by the S&P/ASX300 Accumulation Index posted a solid monthly performance of 2.7% and 2.8% for the calendar year. Small Cap stocks returned 3.9% for the month, outperforming the broader market and Large Caps stocks (2.7%) and Mid Cap stocks (2.0%). Consumer Staples (7.1%) and Consumer Discretionary (4.5%) stocks outperformed in the lead up to Christmas, while Energy (-7.5%) was the worst performing sector.
The MSCI World ex-Australia Index (hedged into AUD) fell by 2.0% over the month. The Australian Dollar appreciated slightly in December, which resulted in a return of -2.2% (in AUD) on an unhedged basis. Performance was poor across developed markets, with Portugal (2.3%) and New Zealand (1.9%) the best performers. Spain (-8.3%), Italy (-6.1%) and France (-5.9%) were the weakest performing countries in local currency terms. The MSCI Emerging Markets Index (-2.6%) underperformed developed markets.
Australian bonds had a slightly positive (0.3%) return for the month, but the return for the quarter was still negative (-0.2%).