Market Update - May 2015

Market Commentary

The investment returns of the major markets for one month, one quarter, and financial year to 31 May 2015 are summarised below.

The Australian equities (S&P/ASX300 Index) ended the month 0.4% higher, after declining in April. Banks were sold off heavily as investors digested news of slowing earnings growth and tighter capital requirements. Australian consumer confidence also hit its highest point since November 2014 as a result of the easing policy of the Reserve Bank of Australia and a release of an expansionary small business package in the Federal Budget. Small Caps stocks returned 2.4%, outperforming Large Caps stocks (0.0%). Financials stocks fell 4.1% while Industrials (+5.4%) and IT (+4.0%) were the strongest performing sectors.

The global equities (MSCI World ex-Australia Index, hedged into AUD) rose by 1.5% over the month. The Australian Dollar depreciated against most developed currencies over May and this resulted in a return of 3.6% (in AUD) on an unhedged basis. Across developed markets, the strongest performing markets in local currency terms were Japan (+5.3%) and Italy (+3.6%), while Singapore (-3.7%) and Portugal (-1.7%) were the weakest. Emerging markets unhedged in AUD returned -1.1%.

US equity markets moved higher again through May with the S&P500 Index gaining 1.0%. After a disappointing start to the financial year, recent upbeat figures from the US sparked a recovery in the US Dollar. Federal Reserve chair Jennet Yellen expects economic data to continue to strengthen and US interest rates to rise this year.

European equities were volatile in May but finished fairly level over the month. There was substantial downward pressure at the beginning of the month due to the global bond sell off. Also, tensions of a potential Greek exit from the Eurozone continued to disrupt markets with the latest repayment deadline to the International Monetary Fund looming.

In Asia, Japanese equities climbed again strongly with the Nikkei finishing 5.3% higher. Continued Bank of Japan (BOJ) easing appears to be having the intended effects on the Japanese economy. Governor of the BOJ, Haruhiko Kuroda indicated that stronger growth will allow him to refrain from further easing. Chinese Markets returned 3.8% in May despite the economy facing significant growth headwinds. Equity markets in Hong Kong and Singapore lost ground, declining by 0.5% and 3.7% respectively.

The return from Australian bonds was flat for May. Global bonds (hedged into AUD) had a negative return for the month and a slightly positive but below cash return for three months to May.