Market Update - March 2015

Market Commentary

The Australian share market finished the month close to flat, yet this was not reflective of the inter month movements, with speculation on interest rates and sharp movements in commodity prices creating meaningful fluctuations.

Sydney’s booming property market, coupled with a concentration of credit growth within the investor loan market, is a concern for the RBA and has reduced the RBA’s ability to take a more aggressive easing policy. As a result, the RBA left rates unchanged in March at 2.25%.

As financial markets looked ahead, concerns over pending interest rate hikes and a higher USD put downward pressure on the US equity market, which weakened in March. US economic data remains robust including a continued decline in unemployment, growing consumer confidence and improved consumer spending.

In Europe the ECB initiated its bond buying program at the start of March resulting in a rally across bond, credit and equity markets. Japanese equities continued to rally with the Nikkei225 adding 2.2% in March. The Chinese Government have revised down its expected annual growth rate from 7.5% to 7.0% during the month. From an Australian perspective less growth is coming from the manufacturing sector, which in addition to increased supply is impacting on commodity prices.

The investment returns of the major markets for one and three months to 31 March 2015 are summarised below.

*Estimate at 7/4/2015.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

The MSCI World ex-Australia Index (hedged into AUD) contracted by 0.2% over the month. The Australian Dollar depreciated against most developed currencies over March and this resulted in a positive return of 1.0% (in AUD) on an unhedged basis. Across developed markets, the strongest performing markets in local currency terms were Denmark and Germany, while Greece and New Zealand were the weakest. Emerging markets unhedged in AUD returned 1.0%, which was in line with developed markets.

The Australian share market as measured by S&P/ASX300 Index fell 0.1% over the month, with Small Caps continuing to underperform, falling 1.9%. Resources stocks struggled as the S&P/ASX300 Resources Accumulation Index fell 6.2%. Energy (-5.7%) and Materials (-4.5%) were the worst performing sectors, while IT (3.7%) outperformed for the month.

Australian and global bonds provided pleasing returns for the month and quarter.