Market Update – May 2013

Investment Market Overview

The month of May was a very volatile period for investment markets. Recent events highlight that the market recovery is still vulnerable to shocks and rapid changes in sentiment.

The dominant headline for global markets was whether the US Federal Reserve would scale back its quantitative easing program. US GDP estimates were revised down but domestic consumption and housing continue to show improvement. In addition, markets were becoming increasingly concerned about the robustness of Chinese economic growth. Worse Chinese data with respect to retail sales, manufacturing, corporate profits and general business activity all contributed to a much more sombre outlook for China. As a consequence, iron ore prices suffered a 17% decline over the month. In Europe, concerns of a continuing recession and a record high unemployment rate of 12.2% were temporarily ignored by markets due to the European Central Bank’s resolve to maintain supportive monetary policies aimed at inducing an economic recovery. In Japan, concerns about whether Japan’s aggressive fiscal monetary policy would be enough to achieve a sustainable path to recovery caused a pull back in their local stock market. In summary, it was a challenging month for markets in the context of mixed economic data.

The global shares markets as represented by the MSCI World ex-Australia Index (hedged in $A) was up 2.2% over the month. With the $A significantly weakening against all major currencies, unhedged returns (in $A) were higher at 8.9%. The Euro region generally posted mixed returns over the month while the Japanese market experienced its first monthly fall (-2.2%) in ten months. The US performed solidly, up by 2.1%. Emerging markets (unhedged in $A) returned 5.5%.

The Australian shares market (S&P/ASX300 Accumulation Index) significantly underperformed both hedged and unhedged global equities, returning -4.5%. In contrast to prior months, Industrials were the main detractor from the overall performance of the Index while Resources outperformed the broader market due to strong performance by BHP. Large caps had a poor month with the top 20 stocks (-5.5%) underperforming the broader market index due to a selloff of the major banks.

Over the month, the RBA cut rates by 0.25%. Long duration global fixed interest rate investments incurred losses. Global credit (as measured by the Barclays Capital Global Credit Index, hedged in $A terms) also lost ground over the month, as did Australian Inflation Linked Bonds. In summary, it was a difficult month for fixed interest investments overall.




 

Market Performance – May 2013

Performance
(income and capital gain
or loss) %

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

-4.5

-2.7

International Shares (MSCI World ex-Australia) unhedged

8.9

13.6

International Shares (MSCI World ex-Australia) hedged

2.2

8.5

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

0.5

1.9

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

-3.7

1.5

Australian Bonds (UBS Composite Index)

-0.1

1.3

Global Bonds (Barclays Global Aggregate (Hedged))

-1.3

0.8

Cash (UBS Bank Bills)

0.3

0.8

Appreciation of $A against $US

-7.6

-6.4


*Estimate as at 7 June 2013