Market Update – March 2013

Investment Market Overview

Recent events in Cyprus underscore that the market recovery is vulnerable to shocks and rapid changes in sentiment. Over the month, investor confidence was shaken in response to events in Cyprus and the possible implications for the broader European region. The plan for Cyprus to impose a tax on bank deposits quickly raised concerns that a banking crisis could eventuate and also that the proposed tax could become a ‘template’ policy solution for other “debt-troubled” European nations.

China’s ability to manufacture a slow-down in its property market also weighed on markets. This had a trickle-down effect to commodities which generally struggled over the month. However the US S&P500 index continued its recent stellar run and managed to reach new all time highs by month end – an extraordinary result considering recent sentiment in relation to Europe and China, as well as the automatic US budget cuts which will remove US$85B from US agency budgets between March and October. In Japan, local equity markets continued to rally on the back of strong US data combined with increasing optimism that Japan would continue to pursue aggressive monetary easing.

The Global Equities as represented by the MSCI World ex-Australia Index (hedged in $A) were up 3.1% over the month. With the $A strengthening against all major currencies, unhedged returns (in $A) were weaker at 0.7%. Emerging markets (unhedged in $A) returned -3.5% and underperformed developed markets due to weaker performance from China, South Korea and Russia.

The Australian shares as measured by the S&P/ASX300 Accumulation Index underperformed hedged global equities returning -2.3%, its first negative month in ten months. Resources were once again the main detractor from the overall performance of the Index as the Materials sector (-9.6%) significantly lagged the broader market. The Australian listed property (S&P/ASX 300 Property Trusts Index) had a weak month returning -2.6% but the Domestic Unlisted Property had another positive month returning 0.5%, most of which was driven by yield.

Long duration global fixed interest rate investments generally performed well (hedged in $A terms). Global credit (as measured by the Barclays Capital Global Credit Index, hedged in $A terms) continues to perform well. However this was the case for Australia over the month as long duration domestic fixed interest rate investments generally struggled. Long duration domestic inflation linked bonds fared the worst over the month.




 

Market Performance – March 2013

Performance
(income and capital gain
or loss) %

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

-2.3

8.0

International Shares (MSCI World ex-Australia) unhedged

0.7

7.4

International Shares (MSCI World ex-Australia) hedged

3.1

10.6

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

0.5

1.5

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

-2.6

5.3

Australian Bonds (UBS Composite Index)

-0.2

0.2

Global Bonds (Barclays Global Aggregate (Hedged))

0.8

1.3

Cash (UBS Bank Bills)

0.3

0.7

Appreciation of $A against $US

1.8

0.4


*Estimate as at 8 April 2013