Volatility returned to the markets in January with widespread selloffs in global and Australian equities. Similar themes drove Australian and global markets. Markets were concerned about a number of factors including the continued declining oil price, Chinese economic growth and the US Federal Reserve’s planned cycle of interest rate increases.
The Australian shares market sold off for eight consecutive days to begin the 2016 calendar year and finished the month down by 5.5%. The US markets fell in January, with the S&P500 ending the month 5.1% lower after declining by as much as 9% by mid-January. European markets as measured by the MSCI All Country Europe Index (unhedged in AUD) fell by 3.8% Asian equities were a significant focus in January, particularly in China as the Shanghai Composite Index fell significantly, finishing the month -22.6% lower.
The Chinese market was halted from trading twice in the first week of January to limit losses. Furthermore, by 5 January the Chinese government had also purchased approximately $20billion worth of equities in 2016 in an attempt to support the market.
The investment returns of the major markets for one month, one quarter and financial year to 31 January 2016 are summarised below.
As mentioned previously, the S&P/ASX300 Accumulation Index fell 5.5% in January. Small Cap stocks (‑5.1%) and Mid Cap stocks (-3.6%) outperformed the broader market and Large Caps stocks (-5.8%). Property Trusts (0.9%) and Utilities (0.7%) stocks outperformed, while Materials (-9.12%) was the worst performing sector.
The MSCI World ex-Australia Index (hedged into AUD) fell by 5.3% over the month. The Australian Dollar depreciated in January, which resulted in a return of -3.2% (in AUD) on an unhedged basis. Performance was poor across developed markets, with Greece (-20.9%) and Italy (-13.2%) the worst performers, compounding on poor performance in December. Despite significant losses in China’s markets, the MSCI Emerging Markets Index was only down by -3.8%, outperforming developed markets.
Australian and global bonds provided comfortable returns over the month and financial year to date, offsetting to some extent the negative returns of a diversified portfolio.