Market Update - October 2015

Market Commentary

The month of October was a good month for global markets, recovering partially from losses in August and September. The volatility in global markets subsided in October and remained reasonably low for the majority of the month. The surprise decision by Westpac to raise its mortgage rate prompted speculation that the RBA would cut rates in November, which sparked a recovery of the S&P/ASX300 Index.

The timing of an interest rate rise by the US Federal Reserve was also a talking point. Markets in the final week of October were largely guided by the Federal Open Market Committee (FOMC) statement showing that a rate rise in December remains a possibility. US markets gained strongly with the S&P500 returning 8.3% for the month.

European markets also performed well in October, encouraged by announcements by various EU central banks. The Riksbank (Swedish nation bank) and the European Central Bank announced potential plans to enhance their existing quantitative easing programs, delivering buoyancy to European financial markets.

Asian markets rallied strongly in October. The Nikkei rose 9.7% on hopes that the Bank of Japan (BoJ) might expand its quantitative easing (QE) program. The BoJ subsequently indicated that it would not increase QE but this did not seem to worry investors. In China, the PBOC instigated an interest rate cut for the sixth time in less than a year, and it again lowered the amount of cash that banks must hold as reserves in an attempt to spark economic growth. Markets performed strongly with the Shanghai Composite Index gaining 10.8% and the Hong Kong rising 8.6%.

The investment returns of the major markets for one month, one quarter and financial year to 31 October 2015 are summarised below.

Locally, the S&P/ASX300 Accumulation Index posted a solid monthly performance of 4.4%, rebounding partially from poor monthly performances in August and September. Small Caps stocks gained 7.6%, outperforming Large Caps stocks which returned 3.7%. Energy (8.0%), Utilities (6.9%) and Health Care (6.2%) stocks outperformed, while Telecoms (-2.8%) was the worst performing sector.

The MSCI World ex-Australia Index (hedged into AUD) rose by 8.0% over the month. The Australian Dollar appreciated in October, which resulted in a return of 6.3% (in AUD) on an unhedged basis. Across developed markets, Germany (11.8%), Greece (11.4) and Japan (10.9%) outperformed while Denmark (1.5%) and the Canada (1.7%) were the weakest performing countries in local currency terms. The MSCI Emerging Markets Index gained 5.5%, underperforming developed markets.

Over the month and the quarter, the Australian and global bonds provided fairly positive returns.