Market Update - February 2016

Market Commentary

Australian and global equity markets retraced again in February, largely due to central bank activity and low global growth. Australian and global bond markets however provided strong positive returns over periods observed in the table below. Oil remained a talking point throughout the month as macroeconomic factors drove increased volatility.
The investment returns of the major markets for one month, one quarter and financial year to 29 February 2016 are summarised below.

The Australian shares market sold off in February although largely due to global macroeconomic factors. Financial reports issued by ASX-listed companies during this reporting season to some extent were well-received although revenue growth has largely been driven by falling input costs for materials and helped by a lack of wage pressure. Most downgrades this reporting season could be attributable to the Resources sector.

The Australian shares market as represented by the S&P/ASX300 Accumulation Index fell 1.7% in February. Small Cap stocks (up 0.9%) and Mid Cap stocks (up 1.4%) outperformed the broader market and Large Caps stocks (down 2.5%). At a sector level, Materials (up 9.1%), Industrials (up 5.8%) and Property Trusts (up 2.8%) outperformed, while Financial ex-Property Trusts (down 9.12%) was the worst performing sector.

The US market also fell slightly in February, with the S&P500 ending the month 0.4% lower. The market was pushed lower due to concerns about the US Federal Reserve’s ability to raise rates in the near future and global market weakness. In a speech to the financial services committee, Janet Yellen tempered expectations of the number of rate raises this year by indicating that 1 or 2 hikes would be more likely than 3 or 4.

Asian equities were volatile in February with China and Japan stock markets again in focus. The Shanghai Composite Index began February with volatility similar to that seen in January. The index managed to stage a mid-month recovery only to sell off again at month’s end, eventually finishing down 1.8%. The Bank of Japan (BoJ) moved interest rates into negative territory in February but investors expressed fresh concerns of central bank’s ability to influence the market. This drove the market lower with the MSCI Japan index finishing the month down by 9.3%.

Overall the MSCI World ex-Australia Index (hedged into AUD) fell by 1.3% over the month. The Australian Dollar appreciated in February, which resulted in a return for overseas equities of -1.6% (in AUD) on an unhedged basis. Performance was poor across developed markets, with New Zealand (up 3.7%) and Singapore (up 2.2%) outperforming while Greece (down 10.5%) and Japan (down 9.3%) were the worst performers. The MSCI Emerging Markets Index (down 1.1%) slightly outperformed developed markets.

Within the bond markets, long duration bonds outperformed the wider market while inflation-linked securities underperformed. Global bonds (hedged into AUD) slightly outperformed Australian bonds.