Market Update - September 2015
Market CommentaryThe month of September saw continued turmoil in global markets. Concerns about China’s economic slowdown are still front of mind and the decline in commodity prices has continued. The timing of the next interest rate rise in the US was also a talking point as the US Federal Reserve opted to not raise interest rates at the September meeting.
China’s economy is being closely watched by investors across the world. Exports, historically a primary source of growth in the Chinese economy, have halted or slipped marginally backwards. However, the retail economy has emerged as a new source of growth and has proven to be more resilient. The stability in consumption has created investment growth among related downstream manufacturing sectors. The future of the economy will hinge on policy reforms that may be needed to restore market confidence in the economy, the equity and currency markets. The recent equity market intervention and lately the foreign exchange market devaluation are two examples.
US economic data continues to show positive signs despite slow global growth elsewhere. Recent data announcements have revealed solid payroll gains and construction activity, while positive consumer spending was evidenced by a better than expected increase in August retail sales.
The investment returns of the major markets for one month, one quarter and financial year to 30 September 2015 are summarised below.
Locally, Australian equities as measured by the S&P/ASX300 Accumulation Index posted another poor monthly performance, compounding on a horrific month in August, and fell a further 2.9% in September. Concerns about China and the slowing of domestic growth weighed on the market. Small Caps stocks fell 0.5%, outperforming the broader market while Large Caps stocks down by 3.2%. Energy (-12.0%), Materials (-11.5%) and Financials (-3.3%) stocks underperformed, while IT (6.1%) was the best performing sector.
The MSCI World ex-Australia Index (hedged into AUD) fell by 3.4% over the month. The Australian Dollar depreciated again in September, which resulted in a return of -2.7% (in AUD) on an unhedged basis. Across developed markets, only Greece (0.3%) finished the month in positive territory while Japan (-7.8%) and Spain (-7.2%) were the weakest performing countries in local currency. Emerging markets unhedged in AUD returned -2.0%, outperforming developed markets.
Australian and global bonds provided positive returns over the month and quarter. Long duration bonds outperformed, while inflation linked securities underperformed the wider market. Global bonds (hedged into AUD) outperformed global investment grade credit and Australian bonds.