Market update - March 2017

Economic conditions continued to improve throughout March across much of the developed world. However global macroeconomic and political uncertainty remained at elevated levels over the month, as British Prime Minister Theresa May triggered Article 50 and formally began the intricate negotiations required for UK to leave the European Union.

Over the month, the US Federal Reserve raised interest rates by 0.25% which marked the most convincing step on their path towards interest rate normalisation. Despite a continued improvement in the US economic strength and sentiment, the US Federal Reserve signaled a slower path of interest rate rises than markets had expected, indicating that they expect two further rate hikes over 2017. In response, some emerging market economies, including China, immediately tightened in an attempt to minimise capital outflows and currency depreciation.

The Australian economy continued to display strong economic conditions with the rapid expansion of the domestic manufacturing sector, an increase in domestic consumption and rising export income. Notwithstanding positive conditions, the Reserve Bank of Australia kept interest rates unchanged in March, highlighting the heightened risks within the Australian property market due to an acceleration of domestic household debt combined with low income growth and tepid core inflation.

The investment returns of the major markets for one and three months and financial year to 31 March 2017 are summarised below.

Market Performance - 31 March 2017 Month Quarter FYTD
Australian Equities 3.3% 4.7% 15.6%
Australian Property (Unlisted)* 0.5% 1.4% 7.3%
Australian Property (Listed) 0.7% -0.1% -2.7%
Overseas Equities (Hedged into AUD) 1.1% 5.9% 17.3%
Overseas Equities (Unhedged into AUD) 1.9% 1.0% 11.1%
Emerging Markets (Unhedged into AUD) 3.4% 5.8% 13.9%
Australian Bonds 0.4% 1.2% -0.8%
Overseas Bonds (Hedged into AUD) 0.0% 0.7% -0.7%
Cash 0.2% 0.4% 1.4%
Australian Dollar vs. US Dollar -0.8% 5.4% 2.5%

The Australian share market as measured by the S&P/ASX300 Accumulation Index rose 3.3% in March.  Small Cap stocks rose 2.7%, while Large Cap stocks (3.3%) performed in line with the broader market.  Utilities (6.3%), Healthcare (5.6%) and Consumer Staples (5.5%) outperformed, while Materials (0.2%) and Telecommunication Services (0.3%) were the worst performing sectors.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.1% over the month.  The Australian dollar depreciated against most developed market currencies in March, which resulted in a return for unhedged overseas equities of 1.9% (in AUD).  In developed markets, France (5.6%) and Germany (3.8%) outperformed the broader market, while Japan (-0.6%) and the US (0.1%) underperformed.  The MSCI Emerging Markets Index (3.4%) outperformed unhedged developed markets.

Australian and global bonds delivered either slightly positive or flat returns over the month and remained in the negative territory for financial year to date.