Market Update – June 2013

Market Commentary

Over the month, markets wobbled on concerns of tapering of stimulus by US Fed.

The dominant headline for global markets was comments from Bernanke that the US Federal Reserve would consider scaling back its quantitative easing program if the US economy continued its recovery path. This caused a reversal of sentiment and a correction across a wide range of asset classes, notably in equities and bonds. In particular, the 10-year rates for US and UK Government Bonds spiked significantly on concerns that low central bank rates would not persist indefinitely. In addition, markets are continuing to hold concerns about the robustness of Chinese economic growth, the expansion of the Chinese shadow banking system, poorer lending standards and the subsequent spike in Chinese interbank lending rates. The emerging consensus is that Chinese growth will be lower than in the past. As a consequence, commodity prices suffered declines over the month as did the Australian dollar. In summary, it was a volatile month for markets.

The index returns of the major markets are summarized in the table below.




 

Market Performance – June 2013

Performance
%

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

-2.4

-2.8

International Shares (MSCI World ex-Australia) unhedged

2.4

15.5

International Shares (MSCI World ex-Australia) hedged

-2.4

2.7

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

0.5

1.5

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

-1.0

3.2

Australian Bonds (UBS Composite Index)

-1.1

0.4

Global Bonds (Barclays Global Aggregate (Hedged))

-1.2

-1.2

Cash (UBS Bank Bills)

0.2

0.8

Appreciation of $A against $US

-4.5

-12.2


*Estimate as at 10 July 2013

The significant depreciation of the Australian dollar relative to most other currencies is reflected in the sharp differences between the monthly and quarterly returns of the currency unhedged vs. hedged of the International Shares.

Measured in local currencies, Europe bore the brunt of the market sell off with France (-5%), Germany (-4.4%), Portugal (-5.4%), Spain (-7.5%) and Italy (-11.2%) being the major laggards. Emerging markets also retreated with big falls in countries experiencing social instability such as Brazil (-9.4%), Egypt (-12.5%) and Turkey (-11.2%).

Given concerns about China and the fall in commodity prices, Resources were the main detractor from the overall performance in Australian shares with Small and Mid Cap Resources struggling the most. From a sector perspective, the worst detractors were Energy (-5.9%), Materials (-10.3%), Industrials (-2.8%) and IT (-7.0%). The best performing sectors were Consumer Staples, Health Care, Financials and Telecoms.

The domestic and global bonds (fixed interest) also produced negative returns over the month.

Recent events highlight that the market recovery is still vulnerable to shocks and rapid changes in sentiment.