Market update - June 2019

Central bank policy yet again steered markets in June as the prospect of widespread monetary stimulus and US-China trade optimism alleviated concerns of a weakening global economy. Against this backdrop, both growth assets (such as shares) and defensive assets (such as bonds) rallied.

Although the US Federal Reserve (Fed) did not announce a change in rates at its June meeting, it indicated its readiness to do so if the economic outlook did not improve. European Central Bank (ECB) President Mario Draghi echoed the dovish sentiment of the Fed and paved the way for further monetary stimulus by adding that the ECB’s asset purchasing program still had “considerable headroom”.

In Australia, economic growth slowed further to a meagre 1.8% in the year through to March 2019; the slowest growth recorded since the 2009 Global Financial Crisis. Amid the softening economic conditions, the Reserve Bank of Australia (RBA) ended a 34-month pause and cut the official cash rate by 0.25% to a historic low of 1.25% in a bid to combat weakening employment, wages and inflation. RBA governor Philip Lowe also signaled that the door would be open to further rate cuts if needed

US-China trade talk progress also boosted sentiment as markets reacted positively to the G20 Summit late in the month which led to expectations that trade talks were set to resume after a six-week stalemate. Investor optimism was also spurred by the indefinite suspension of the new tariffs on Mexican imports proposed by Trump in May.

The investment returns of the major markets for one month, three months and one year (or financial year) to 30 June 2019 are summarised below.

Market Performance - 30 June 2019

Month

Quarter

1 Year

(or FYTD)

Australian Equities

3.6%

8.0%

11.4%

Overseas Equities (Hedged into AUD)

5.9%

3.6%

6.8%

Overseas Equities (Unhedged into AUD)

5.3%

5.4%

12.6%

Emerging Markets (Unhedged into AUD)

5.0%

2.0%

7.0%

Australian Property (Unlisted)

0.5%

1.2%

6.8%

Australian Property (Listed)

4.2%

4.1%

19.4%

Global Listed Property (Hedged into AUD)

1.0%

-0.2%

8.7%

Australian Bonds

1.0%

3.1%

9.6%

Overseas Bonds (Hedged into AUD)

1.3%

2.7%

7.2%

Cash

0.1%

0.4%

2.0%

Australian Dollar vs. US Dollar

1.3%

-1.2%

-5.0%

Source – JANA, FactSet

Global equity markets were broadly positive over the month, recovering from weakness in May to cap off a positive quarter. In the US, the S&P 500 Index returned 7.0%, led higher by Materials on the back of gold prices reaching a six-year high. The market was also buoyed by returns within Technology and Energy, while traditional defensive stocks were the laggards, albeit posting modest gains. Elsewhere, Chinese equities outperformed the broader market, buoyed by expectations in late June of the imminent US-China trade ceasefire. Among the best performing countries were Italy (7.6%) and USA (7.0%), while Japan (3.0%) and Canada (2.6%) both lagged the broader index.

Within emerging markets, Argentina (26.6%) continued its recent resurgence, while India (-1.2%) lagged the broader market

In Australian, the S&P/ASX 300 Accumulation Index (3.6%) underperformed hedged overseas equities over the month. Small cap stocks underperformed large cap stocks, with the ASX Small Ordinaries Accumulation Index returning 0.9% and the S&P/ASX 50 Accumulation Index returning 4.2%. Australian Property Trusts (4.2%) outperformed Global Property Trusts (1.0%) as well as the broader equities market.

The Australian Dollar recorded mixed results against the major developed market currencies over the month, depreciating against the Euro (-0.9%) and appreciating against both the Pound (0.3%) and the Japanese Yen (0.5%). The most significant move was against the USD (1.3%) as markets priced in expectations of the Fed announcing a rate cut in July.

Australian bonds and Overseas bonds delivered positive returns over the month.