Market update - January 2019

January provided some respite for global markets as concerns over rising US interest rates faded, China signaled a continued desire to stimulate the economy and the US temporarily reopened the government after the longest federal government shutdown in history.

The investment returns of the major markets for one and three months, financial year, and one year to 31 January 2019 are summarised below.

Market performance - 31 January 2019

Month

Quarter

FYTD

1YR

Australian Equities

3.9%

1.4%

-3.4%

1.1%

Overseas Equities (Hedged into AUD)

7.1%

-0.5%

-2.0%

-4.1%

Overseas Equities (Unhedged into AUD)

4.1%

-2.1%

-0.4%

4.4%

Emerging Markets (Unhedged into AUD)

5.0%

7.2%

1.1%

-4.4%

Australian Property (Unlisted)

0.5%

2.3%

4.8%

9.9%

Australian Property (Listed)

6.0%

7.5%

6.2%

13.1%

Global Listed Property (Hedged into AUD)

10.0%

7.3%

4.4%

8.1%

Australian Bonds

0.6%

2.4%

3.5%

5.5%

Overseas Bonds (Hedged into AUD)

1.0%

2.9%

2.6%

3.3%

Cash

0.2%

0.5%

1.2%

1.9%

Australian Dollar vs. US Dollar

3.6%

2.9%

-1.3%

-10.0%

Source – JANA, FactSet

The US equity market started the 2019 calendar year positively with the S&P 500 appreciating 7.9% over the month of January. In large part this strong performance was driven by the Federal Reserve (Fed) indicating they would become more ‘patient’ in their pursuit of policy normalisation. These comments were welcomed by investors and alleviated fears the Fed was too ‘hawkish’ with their interest rate policy (i.e. wanting to continue to tighten). Furthermore, robust economic data in the US, despite a federal government shutdown for most of January, and news that trade talks with China were progressing were viewed favorably by global markets.

Elsewhere, the UK equity market followed global markets up, buoyed by stronger than expected GDP growth and falling inflation. This was despite all the challenges the UK faces with the imminent Brexit deadline after Theresa May’s Brexit deal was defeated convincingly in UK Parliament in January. In China, growth continued to slow as the effects of the US/China trade war flowed through to the broader economy. However, Chinese equity markets moved higher over the month as the People’s Bank of China (PBOC) announced additional easing measures and positive news flow in relation to trade talks with the US.

The Australian equity market rallied alongside global equity markets in January with the ASX 300 rising 3.9%, although performance was more modest than global equities of 7.1%. The weaker relative performance was driven by the Financials sector (-0.3%) which was weighed down by investor expectations of potential negative implications flowing from the Royal Commission into Financial Services final report which was due for release in early February. The Energy sector saw the largest monthly appreciation (11.5%) as crude oil prices rebounded from a disappointing December quarter, followed by the IT sector (8.8%) which also benefited from the global market rally.

The Australian dollar appreciated against most major currencies during January, rising marginally against the Pound (0.3%), and more significantly against the USD (3.6%), Euro (3.2%), and Yen (2.7%). In aggregate, these moves resulted in hedged global equities (7.1%) outperforming unhedged equities (4.1%). 

Australian and Overseas bonds delivered positive returns over the month.