Market update - May 2018

Global equity markets saw gains in May, rising 1.4% on an AUD hedged basis despite the significant volatility and mixed results across geographies over the month. Geopolitical tensions remained elevated with uncertainties regarding the potential meeting between US President Donald Trump and North Korean leader Kim Jong-un which was still unconfirmed as at month-end and additional levies on steel and aluminum announced by the US which will impact its major trading partners. Furthermore, Italian politics rattled investors towards the end of the month, with fears of a snap election and concerns over Italy’s intentions to remain in the EU weighing on European equity markets, with the MSCI AC Europe Index falling 3.4%, while Italian 10-year bond yields rose from 1.8% to 2.8%.

In the US, the unemployment report for April showed labour markets continuing to tighten as the unemployment rate fell lower to 3.9%. In addition, consumer confidence remains close to 17-year highs, US corporates continue to benefit from corporate tax reductions, and inflation edged higher to 2.5%.

In Australia, the Federal Government released the Budget for the upcoming financial year which outlined tax cuts for low and middle-income earners, reforms to superannuation administration and over $25 billion worth of infrastructure spending. The third round of the Royal Commission into banking kicked off in May. The Financial sector declined by 0.1% over the month with the major banks falling over 1% while in aggregate the domestic market rose 1.2%.

The investment returns of the major markets for one and three months, financial year, and one year to 31 May 2018 are summarised below.

Market performance - 31 May 2018 Month Quarter FYTD 1 year
Australian Equities 1.2% 1.1% 9.7% 10.0%
Overseas Equities (Hedged into AUD) 1.4% 1.2% 11.7% 11.9%
Overseas Equities (Unhedged into AUD) 0.5% 2.8% 13.4% 10.4%
Emerging Markets (Unhedged into AUD) -3.7% -2.9% 14.8% 12.6%
Australian Property (Unlisted) 0.5% 2.5% 9.8% 12.0%
Australian Property (Listed) 3.0% 7.5% 10.7% 5.7%
Global Listed Property (Hedged into AUD) 2.3% 8.0% 5.2% 5.8%
Australian Bonds 0.7% 1.2% 2.6% 1.7%
Overseas Bonds (Hedged into AUD 0.4% 0.8% 1.7% 1.5%
Cash 0.2% 0.5% 1.6% 1.8%
Australian Dollar vs. US Dollar 0.2% -2.9% -1.4% 1.6%

Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays

The Australian share market as measured by the S&P/ASX300 Accumulation Index rose 1.2% as Small Cap stocks rebounded over the month, returning 3.7% and outperforming the broader market, while Large Caps (1.0%) slightly underperformed. Healthcare (5.5%) and Consumer Discretionary (5.3%) were the top performing sectors, while Telecommunications (-10.1%) and Financials (-0.1%) detracted.

Global shares markets were up 1.4% when hedged against the Australian dollar and up 0.5% for unhedged exposures as the AUD appreciated against most other major currencies in particular the Euro and Pound. There was significant dispersion across developed market returns in May, with Canada (3.2%), the UK (2.7%) and the US (2.4%) the top performers, while Italy (-8.1%), Singapore (-5.0%) and Japan (1.7%) lagged the broader market. Emerging Markets (-3.7%) significantly underperformed Developed Markets.

Australian and overseas bonds delivered positive returns over the month.Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays