Market Update – February 2013

The bulls continue to reign

In what has become a consistent recent theme, equity markets generally edged higher in response to the various stimulatory activities of the major economic zones and improved investor sentiment. In the US, reporting companies generally continue to beat analyst expectations and the housing sector continues its recovery. However, the looming automatic US budget cuts will remove US$85B from US agency budgets between March and October. In Europe, southern European markets wobbled against the backdrop of uncertainty with respect to the outcome of recent the Italian election which left control of its parliament in limbo. In China, recent Purchasing Managers Index and CPI data disappointed. This had a trickle-down effect to commodities, which generally struggled over the month. In Japan, market observers gained comfort that the new Bank of Japan chief would continue to pursue aggressive monetary easing. In summary, risk assets generally continue to edge forward, shrugging off softer recent Chinese data and the looming automatic US budget cuts.

The MSCI World ex-Australia Index (hedged in $A) was up (1.6%) over the month. With the $A weakening against the $US and yen, unhedged returns (in $A) were slightly stronger (2.0%). The major markets of the US (1.3%), the UK (1.9%) and Japan (3.8%) posted good results, while the Euro region struggled on the back of weaker equity market performance from Germany, Italy and Spain. Emerging markets (unhedged in $A) (0.6%) underperformed developed markets due to weaker performance from Argentina, Brazil, China, India and South Africa. From a global sector perspective, only Energy, Materials and Telecommunications posted negative results. Strong performance was achieved by the Industrials, Consumer Staples, Health Care and IT sectors.

The S&P/ASX300 Accumulation Index achieved a very strong return in February (5.3%), significantly outperforming hedged global equities. Large caps (6.0%) were again the standout performing segment of the Index, driven higher by Industrial stocks. Small Caps again lagged the broader Index, dragged down by small Resources names. Apart from Materials, all sectors achieved positive returns over the month. The standout performing sectors of the market were Industrials, Consumer Discretionary, Consumer Staples and Financials. Of note, over the last twelve months the S&P/ASX 100 Industrials Index has achieved +39% while the S&P/ASX Small Ordinaries Resources Index has significantly lagged, posting -35%, highlighting the strong performance of Industrials and the relatively weaker performance of the Resources sector.

The S&P/ASX 300 Property Trusts Index (3.5%) had another strong month of absolute performance, outperforming global listed property (1.9%) (hedged in $A), although underperforming the broader Australian listed markets. The sector continues its very strong past 12 months (33%). Domestic unlisted property had another positive month (0.5%) mostly driven by yield. Domestic unlisted property underperformed relative to domestic listed property over the month and past year. Listed domestic infrastructure & utilities (2.2%) underperformed equity markets.

The yields on 10-year Government bonds for Australia, Euro Area, UK and the US all tightened over the month. As such, long duration fixed interest rate investments generally performed solidly. Global credit (as measured by the Barclays Capital Global Credit Index, Hedged in $A terms) continues to perform well, and along with long duration Inflation Linked Bonds, is one of the stand out performing bond sectors over the last twelve months.

Risk assets generally continue to perform well in spite of softer recent Chinese data and the looming automatic US budget cuts. For the time being, investor sentiment appears to be in two camps: one is of the view that the recent market rally isn’t supported by earnings growth, while the other believes that there is a ‘weight of money’ moving from bonds to equities which will continue to support equity prices.




 

Market Performance – February 2013

Performance
(income and capital gain
or loss) %

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

5.3

14.2

International Shares (MSCI World ex-Australia) unhedged

2.0

9.2

International Shares (MSCI World ex-Australia) hedged

1.6

9.6

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

0.5

2.1

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

3.5

11.2

Australian Bonds (UBS Composite Index)

0.6

0.6

Global Bonds (Barclays Global Aggregate (Hedged))

0.8

0.9

Cash (UBS Bank Bills)

0.2

0.8

Appreciation of $A against $US

-1.9

-1.9


*Estimate as at 7 March 2013