Following strong returns from domestic and international markets in the month of July, the Australian equity market pulled back slightly in August. Global markets achieved marginal positive performance, with emerging markets outperforming developed markets.
The Australian equity market performance largely revolved around reporting season. The market traded between small gains and losses as corporates either beat or missed market expectations. The Reserve Bank of Australia (RBA) cut the cash rate by 0.25% to 1.5% in early August but the move failed to encourage the equity market higher, largely because it had already been priced in.
US equities were flat over the month with market volatility remaining very low. There were a number of positive economic releases in the US including strong nonfarm payrolls and monthly construction spending. However, any improved positive sentiment was contained by an increased probability of an interest rate hike in 2016.
European equity markets performed well in early August as the Bank of England (BoE) cut interest rates and announced a £170 billion stimulus package. The remainder of the month saw weakness in European markets, particularly as a strengthening US Dollar weighed on mining and energy production stocks.
Performance of Asian markets was relatively positive as the Shanghai Composite Index (China) rose 3.6% and the Nikkei Index (Japan) rose 1.9%. The Nikkei Index was strengthened on speculation the Bank of Japan would continue its stimulus program in September. In China, equities were propelled by the People’s Bank of China initiating its first 14-day liquidity injection in many months.
The monthly, quarterly and financial-year-to-date (two months) returns of the major markets to 31 August 2016 are summarised below.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
*Estimate at 08/09/2016
Australian equities as measured by the S&P/ASX300 Accumulation Index fell 1.6% in August. IT (4.6%) and Energy (2.4%) stocks outperformed, while Telecoms (-6.5%) and Utilities (-5.7%) were the worst performing sectors.
Global equities as measured by the MSCI World ex-Australia Index (hedged into AUD) gained 0.7% over the month. The Australian Dollar depreciated in August, which resulted in a return for unhedged overseas equities of 1.3% (in AUD). Ireland (5.9%) and the Netherlands (3.4%) outperformed the broader market, while Denmark (-5.8%) and Finland (-1.0%) underperformed. The MSCI Emerging Markets Index (3.7%) outperformed developed markets.
Australian and global bonds recorded slightly positive returns over the month.