Market Update - February 2014

Market Commentary

Janet Yellen took the reins of the US Federal Reserve (the Fed) chairmanship in early February and early indications are that she will continue the policies of her predecessor. US equity markets reached a new all time high over the month on the back of strong reported earnings combined with evidence of renewed corporate merger and acquisition activity. In Europe, European Central Bank policy remains ‘on hold’. Eurozone GDP exceeded expectations and economic growth forecasts are improving but are still relatively benign at 1.2% for 2014 and 1.8% for 2015. Recent UK jobless claims fell faster than expected and December quarter GDP expectations were close to consensus estimates. However, the economic outlook for the UK generally looks softer. China exports achieved an annual growth of 10.6% to the end of January while manufacturing sentiment indicators for February were below expectations. Excessive leverage in the Chinese economy remains a key concern. In Japan, inflation of 1.4% continues to approach the Bank of Japan’s stated 2% target. But the current account deficit widened and economic growth continues to disappoint.

The investment returns of the major markets for one and three months to 28 February 2014 are summarised below.




 

Market Performance – February 2014

Performance
%

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

4.9

2.6

International Shares (MSCI World ex-Australia) unhedged

2.4

5.7

International Shares (MSCI World ex-Australia) hedged

4.4

3.6

Unlisted Property (Mercer Unlisted Property Funds Index (Pre Tax)*

0.5

2.1

Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation)

4.3

3.4

Australian Bonds (UBS Composite Index)

0.3

2.0

Global Bonds (Barclays Global Aggregate (Hedged))

0.7

2.0

Cash (UBS Bank Bills)

0.2

0.6

Appreciation of $A against $US

2.6

-2.1

*Estimate as at 10/03/2014

The MSCI World ex-Australia Index (hedged to $A) rose 4.4% over the month. The rise of the Australian Dollar against most major currencies resulted in a lower return of 2.4% (in $A) on an unhedged basis. Across developed markets the strongest performing countries in local currency terms were the European countries of Denmark and Ireland, while the major markets of the US, UK and Germany all produced strong absolute returns. Japan was the only developed country in the index to post a loss over the month. Emerging markets underperformed developed markets as index heavyweights Brazil and Russia produced negative absolute returns. From a global sector perspective Energy, Materials and Health Care were the strongest performing sectors. Telecoms was the only sector to record a negative return over the month while Industrials and Financials achieved positive absolute returns but lagged the broader market.

The Australian share market - the S&P/ASX300 Accumulation Index - rose 4.9%, slightly outperformed hedged global equities as investor sentiment was again driven by similar macro themes. Resources stocks outperformed Industrials, Small and Mid-Caps stocks outperformed Large Caps with relative outperformance driven by Resources. The S&P/ASX 300 Property Trusts Index marginally underperformed the broader Australian equity index but outperformed unlisted property.

Global and Australian bonds provided positive returns over the month. The Australian Cash Rate was unchanged in February and remains at 2.5%. The Australian Dollar (AUD) appreciated +2.6% against the $US over the month in what was a volatile period for the AUD that traded between $US 0.873 and $US 0.909 before closing the month at $US 0.895. The AUD also appreciated against the Yen and Pond Sterling but was relatively flat against the Euro.