Market Update - March 2016

Market Commentary

Australian and most global equity markets performed strongly in March, largely due to central bank activity and positive sentiment in global markets. The monthly, quarterly and financial year returns of the major markets to 31 March 2016 are summarised below.

The Australian equity market as measured by the S&P/ASX300 Accumulation Index rose 4.8% in March despite global macroeconomic fears.  Positive sentiment drove markets higher early in the month as GDP growth on an annualised basis for the December quarter came in at 3% versus a market consensus of 2.5%.  The market did react negatively to ANZ raising its Bad and Doubtful Debts expense by $100M in late March. Small Cap stocks returned 5.8% for the month, outperforming the broader market and Large Caps stocks (+4.6%).  Energy (+6.2%), Materials (+6.1%) and Financials (+5.9%) stocks outperformed, while Health Care (-0.4%) was the worst performing sector.

The global equity markets as measured by the MSCI World ex-Australia Index (hedged into AUD) rose by 5.3% over the month.  The Australian Dollar appreciated strongly in March, which resulted in a return for overseas equities of -0.9% (in AUD) on an unhedged basis.  Performance was strong across developed markets, with New Zealand (9.7%) and Hong Kong (9.5%) outperforming while Norway (0.3%) and Switzerland (0.4%) were the worst performers. The MSCI Emerging Markets Index (5.2%) outperformed developed markets.

In the US, the S&P500 rose by 6.6% in March.  The market was stimulated by a recovery in oil prices from February lows.  Market volatility was also significantly lower in March than February. Markets rallied post the US Federal Open Market Committee meeting as US Federal Reserve left interest rates on hold.

In Europe, the European Central Bank cut its deposit rate further into negative territory in early March.  The terrorist attack in Brussels weighed on the index towards the end of the month, however markets reversed losses on the back of US Federal Reserve Janet Yellen’s “dovish” statements (i.e statements that were perceived by the markets as supporting low interest rate environment).

Asian equities were volatile again in March.  The Chinese and Japanese stock markets ended up strongly for the month.  The Shanghai Composite Index bounced around during the month, reacting to numerous domestic and international economic data releases.  Despite the volatility, the index generally trended on an upward trajectory ending the month 11.6% higher.  The Nikkei Index rose 4.6% in March, despite the Bank of Japan (BoJ) refraining from further stimulus, leaving interest rates unchanged. Although the returns of Australian bonds were slightly negative in March, both Australian and global bonds provided comfortable returns over the quarter and financial year to 31 March 2016.