Early in the month, the Reserve Bank of Australia made what was arguably a surprise cut to the official cash rate, lowering it 0.25% to 2.25%. The move was partially a response to what has increasingly been seen by observers as a new currency war between central banks – with over 17 central banks cutting their rates this year so far. The cut spurred simultaneous rallies in Australian equity and fixed interest markets and spurred on already elevated property markets.
February was also a very strong month for global equities. US equities rebounded from poor January results to exceed previous highs recorded in December. The S&P500 rallied 5.5% over the month to an all-time high. The Dow Jones also climbed 5.6% to an all-time high to and the NASDAQ rose 7.1% to a level unseen since the dot-com bubble a decade and a half ago.
European equities had strong gains for the month with the MSCI Europe (hedged in Australian dollar or AUD) up 6.1%. Continental markets were mostly buoyed by expectations of the impact of the European Central Bank (ECB) Quantitative Easing (QE) ahead of implementation in March. The other major headline in Europe was the continuing concerns over Greece in the aftermath of the Syriza win. The negotiations between Greece and the ECB over a re-negotiation of the bail-out conditions have been extended, with the possibility of Greece leaving the Eurozone still weighing on fixed interest markets.
Japan also had a strong month with the Nikkei 225 rallying 6.4% amid continuing Bank of Japan quantitative easing. Yet elsewhere in Asia, equity markets were patchy, with Hong Kong, Shanghai and Bombay all posting less convincing results.
The investment returns of the major markets for one and three months to 28 February 2015 are summarised below.
*Estimate at 5/3/2015
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
The Australian Dollar appreciated against most major currencies over the month, therefore the returns from global equities were 5.3% (unhedged) vs 6.1% (hedged into AUD) over the month. In local currency terms, the strongest performing share markets were Greece, Ireland and Austria, and the weakest were Hong Kong and New Zealand. Emerging markets were up 2.6% (unhedged in AUD), lagging developed markets, despite Russia posting a second consecutive month of strong growth and Brazil bouncing back strongly from losses in January.
The Australian share market as measured by the S&P/ASX300 Index was up 6.9% over the month. Performance was very strong across all segments of the market. Small Caps (8.4%) and Resources stocks (11.3%) were a standout, while Telcos (-1.5%) gave back some of January’s gains and Consumer Staples was flat for the month.
Australian bonds outperformed global bonds (hedged into AUD) while global investment grade credit underperformed global government bonds.