Market Update – December 2013

Market Commentary

Strong US economic data led to the US Federal Reserve (the Fed) announcing the tapering of their quantitative easing program in mid-December. This sees monthly purchases by the Fed decline by US$10B to US$75B, with the reduction split evenly between government and mortgage-backed securities. The timing of tapering came ahead of market expectations, however, investors generally reacted positively due to a combination of improving US economic activity and a commitment by the Fed to keep short-term interest rates low for an extended period. In Europe, the most recent data releases continue to point toward positive economic growth, however, overall conditions remain depressed and inflation remains below target. Data releases in China were broadly in line with expectations, while in Australia the RBA left the Cash Rate unchanged at 2.50% as it continues to monitor the impact of past rate cuts and the lower Australian Dollar.

The investment returns of the major markets for one and three months to 31 December 2013 are summarised below.




 

Market Performance – December 2013

Performance
%

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

0.8

3.4

International Shares (MSCI World ex-Australia) unhedged

4.5

13.3

International Shares (MSCI World ex-Australia) hedged

2.4

9.4

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

0.5

1.5

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

-1.3

-1.4

Australian Bonds (UBS Composite Index)

0.5

0.4

Global Bonds (Barclays Global Aggregate (Hedged))

-0.4

0.8

Cash (UBS Bank Bills)

0.2

0.7

Appreciation of $A against $US

-2.1

-4.3

*Estimate as at 10/01/2014

The MSCI World ex-Australia Index (hedged to $A) rose 2.4% over the month and the decline of the Australian Dollar against most major currencies resulted in a higher return of 4.5% (in $A) on an unhedged basis. Across developed markets the strongest performing country in local currency terms was Japan. This was, however, accompanied by a weaker Yen therefore returns that are not hedged to the Australian dollar were not as high as in Yen. The US also performed strongly (2.7%), while the UK and Germany were weaker on a relative basis. Emerging markets underperformed developed markets largely due to weak performance in Brazil, China and South Korea.

Australian shares (the S&P/ASX300 Accumulation Index) underperformed hedged global equities, but a positive return of 0.8% was achieved for the full month despite the market drop early in the month. The Energy and Telecommunications sectors were the strongest performers, while Financials and Property Trusts produced negative absolute returns. Small cap stocks outperformed large caps with relative performance mostly driven by small Resources. The S&P/ASX 300 Property Trusts Index lagged domestic unlisted property.