Market Update - April 2015

Market Commentary

April was a volatile month for the Australian market and the ASX300 ended the month 1.6% lower, which was largely attributable to a substantial sell off at month’s end.  There was a rally in the price for iron ore over the month and the Australian Dollar topped the US80c mark briefly.    The Reserve Bank of Australia’s decision on the future course of interest rates was front of mind for investors.

US markets continued to rally with the S&P500 climbing nearly 1%.  The US first quarter earnings reporting season began in March with many corporates missing analysts’ expectations.  The strong US Dollar and inclement weather were factors anticipated to weigh on corporate profits.  A disappointing result of just 0.2% growth in the US economy for Q1 pushed back expectations of the first US Federal Reserve rate hike to at least September 2015.

European equities grew strongly in April before falling away significantly in the last days of the month.  European corporate earnings were solid, with 60 out of 107 European reporting firms beating analyst expectations.  UK markets continue to move contrary to the rest of Europe, with the MSCI United Kingdom ending the month 3.3% higher.

In Asia, Japanese markets climbed over the month with the Nikkei finishing 1.6% higher.  Chinese Markets returned a remarkable 18.5% in April despite slowing growth.  The Chinese government took action on their economic situation by cutting required reserve ratios for financial institutions in an attempt to fuel lending.  The Hong Kong market also grew strongly as Chinese investors were allowed access to the stock exchange.

Oil rallied significantly with the WTI Crude Oil closing at $59.54, up 24.8% for the month.  The move has been partly driven by a reduction in supply as well as heightened geo-political tensions in the Middle-East.

The investment returns of the major markets for one month, one quarter, and financial year to 30 April 2015 are summarised below.

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

The Australian shares market as measured by S&P/ASX300 Index fell 1.6% over the month.  Small Cap stocks returned a positive 1.7% and outperformed Large Cap stocks (-2.0%).  Financials stocks struggled and fell 4.1% while Energy (8.5%) and Utilities (2.2%) were the strongest performing sectors.  Also, the ASX Small Ords Resources index returned 11.3% in April on the back of increasing commodities prices.  

Global equities as measured by MSCI World ex-Australia Index (hedged into AUD) rose by 1.4% over the month.  The Australian Dollar appreciated against most developed currencies over April and this resulted in a return of -0.8% (in AUD) on an unhedged basis.  Across developed markets, the strongest performing markets in local currency terms were Hong Kong (9.1%) and Portugal (6.1%), while Finland (-5.3%) and Germany (-4.3%) were the weakest.  Emerging markets unhedged in AUD returned 4.3%, which significantly outperformed developed markets largely due to the strength of Chinese markets.  From a global sector perspective, Energy was a standout performer returning 6.2% for the month, while Health Care (-3.2%) and Consumer Discretionary (-1.9%) were the worst performing sectors. 

Over the month, the Australian and global bonds had negative returns, wiping out the positive returns in the previous two months. However, investment returns from bonds are still comfortably strong for the financial year to April.