Market Update - February 2017

Market Commentary

February 2017

Market sentiment improved during February with most markets performing well. Strong corporate earnings in the US, a sharp pickup in business activity across the Eurozone and the stabilisation of China’s economy provided ample support for the market. While markets continued to rise, macroeconomic and political risks remain elevated, with continued lack of clarity around the details of US President Donald Trump’s proposed fiscal policies and the upcoming French presidential elections, where leading far-right candidate Marine Le Pen promises to lead France out of the Euro currency and reclaim monetary sovereignty. In the Asian region, tensions with North Korea continued to rise following a ballistic missile test early in the month and the alleged assassination of Kim Jong-nam as he travelled through Malaysia’s Kuala Lumpur International Airport.

China’s economy continued to show signs of stabilisation through January and February. The Purchasing Managers Index, an indicator of the health of the manufacturing sector, remained positive. China reported a strong increase in producer (6.9%) and consumer (2.5%) inflation for the month of January, driven mainly by higher commodities and food prices. This reflects the Chinese government’s efforts to support the economy through infrastructure spending. The People’s Bank of China (PBoC) lifted their short term interest rates by 0.1% early this month in an attempt to force the deleveraging of high debt-laden firms and suppress speculative optimism within their overheated property and commodity futures market. While marginal, the increase is a further sign that the PBoC is moving toward a tight monetary policy bias as the economy stabilises.

Australia recorded its largest trade surplus of $3.5bn for the latest December month along with a sharp contraction of their current account deficit to $3.9bn for December quarter. Driven by a surge in commodity prices and a rise in export volumes led by an increase in Chinese demand, these economic indicators suggest positive support to GDP growth in Australia. The Reserve Bank of Australia (RBA) kept interest rates unchanged for the month while providing a positive outlook on the Australian economy, citing improving business sentiment and rising commodity prices.

The investment returns of the major markets for one and three months and financial year to 28 February 2017 are summarised below.

Market Performance - 28 February 2017

Month

Quarter

FYTD

Australian Equities

2.2%

5.8%

12.0%

Australian Property (Unlisted)*

0.6%

2.9%

6.7%

Australian Property (Listed)

4.1%

5.9%

-3.4%

Overseas Equities (Hedged into AUD)

3.2%

7.8%

16.0%

Overseas Equities (Unhedged into AUD)

1.5%

3.6%

9.1%

Emerging Markets (Unhedged into AUD)

1.8%

4.8%

10.2%

Australian Bonds

0.2%

0.6%

-1.2%

Overseas Bonds (Hedged into AUD)

0.9%

1.0%

-0.7%

Cash

0.1%

0.4%

1.2%

Australian Dollar vs. US Dollar

1.3%

4.1%

3.3%

Australian shares ended the month higher as the February reporting reason delivered a stronger than expected earnings results. The S&P/ASX300 Accumulation Index rose 2.2% in February.  Small Cap stocks rose 1.3% for the month, while Large Cap stocks (2.4%) outperformed the broader market.  Consumer Staples (6.0%), Financials (4.1%) and Property Trusts (4.1%) stocks outperformed, while Materials (-3.2%) and Telecommunication Services (-3.1%) were the worst performing sectors.

The MSCI World Index ex-Australia (hedged into AUD) rose 3.2% over the month.  The Australian dollar appreciated against most developed market currencies in February, which resulted in a return for unhedged overseas equities of 1.5% (in AUD).  In developed markets, the US (3.9%) outperformed the broader market, while Canada (0.0%) and Japan (0.5%) underperformed. 

Australian and global bonds delivered positive returns over the month and quarter but remained in the negative territory for financial year to date.