Market Update - June 2016

Market Commentary

The UK referendum on 23 June 2016 whether to remain or leave the EU (which was popularly covered in the media with catchwords “Bremain – Britain remains in the EU” and “Brexit – Britain exits the EU”) drove most of the up and down movements in global markets over the month of June.  A few days before the referendum date there was some optimism the UK would remain in EU and this pushed global markets notably higher. However, as soon as the result was known and it was an exit from the EU, the global markets slumped immediately.

The Australian market as measured by the S&P/ASX300 fell over 3% on 24 June when the success of the “Leave” campaign became apparent. Most markets, however, broadly recovered during the last few days of June, offsetting most of the losses made in the immediate period after the referendum.

The monthly, quarterly and financial year (full financial year) returns of the major markets to 30 June 2016 are summarised below.

The Australian share market as measured by the S&P/ASX300 Accumulation Index was down 2.4% in June.  Small Cap stocks fell 1.3% for the month, outperforming the broader market and Large Caps stocks (-2.6%).  Utilities (5.6%), Property Trusts (3.5%) and Materials (0.6%) stocks outperformed, while IT (-7.6%) and Financials ex Property Trusts (- 5.9%) were the worst performing sectors.

The MSCI World ex-Australia Index (hedged into AUD) fell by 1.1% over the month.  The Australian Dollar appreciated in June, which resulted in a return for unhedged overseas equities of -3.8% (in AUD).  Performance was mostly negative across developed markets.

The US equity markets as represented by the S&P 500 fell sharply on the news of the success of the Brexit campaign.  However, by the end of the month, US markets finished the month slightly positive.
European markets slumped over the month with Greece (-24.9%), Ireland (-11.4%) and Italy (-8.9%) underperforming while the UK equity market finished the month over 4% higher.  UK markets initially tumbled on the news of the Brexit, yet the depreciation of the Pound Sterling, and an expectation of market stimulus, resulted in UK markets finishing higher by month end.

The MSCI Emerging Markets Index (1.3%) outperformed developed markets. Performance of Asian markets was mixed as the Japanese share market weakened, while the Chinese stock market performance was fairly flat for the month.  The Japanese market (Nikkei Index) was impacted by the appreciation of the Yen as investors sought refuge in safe currencies.  At the end of June, the impact of the Brexit vote was even more pronounced on the Japanese market than the European market, as the Nikkei Index closed the month over 9% lower.

Australian and global bonds continued to deliver comfortable returns over the month, quarter and financial year.