Market Update - May 2016

Market Commentary

Performance in global share markets was mixed in May, with Australian and US markets having positive months while some European and Asian markets marginally slumped.  Market movements were largely driven by central bank policy and economic data announcements.
The monthly, quarterly and financial year returns of the major markets to 31 May 2016 are summarised below.

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
*Estimate at 13/06/2016

The Australian share market as measured by the S&P/ASX300 Accumulation Index rose 3.1% in May, with the focus on Reserve Bank of Australia (RBA) activity throughout the month.  The S&P/ASX300 climbed strongly early in the month as the RBA cut the cash rate by 0.25% to 1.75%.  Economic data releases in the US and China drove movements for the remainder of the month, while weak data locally placed pressure on the RBA to further loosen monetary policy. 

 Small Cap stocks returned 4.1% for the month, outperforming the broader market and Large Caps stocks (2.6%).  Health Care (9.4%), IT (7.1%) and Consumer Discretionary (5.6%) stocks outperformed, while Materials (-3.0%) and Energy (-1.6%) were the worst performing sectors.

The global share markets as measured by the MSCI World ex-Australia Index (hedged into AUD) rose by 2.0% over the month.  The Australian Dollar depreciated in May, which resulted in a return for overseas equities of 6.1% (in AUD) on an unhedged basis. 

Performance was positive across developed markets, with Ireland (5.4%) and Belgium (5.1%) outperforming, while Austria (-3.7%) and Singapore (-2.1%) were the worst performers.  The MSCI Emerging Markets Index (1.4%) underperformed developed markets.

The US share market also finished the month in positive territory, with the S&P500 ending the month 1.5% higher.  Market sentiment was initially negative as the release of Chinese manufacturing data renewed concerns of global growth.  Yet a number of US economic data releases surprised on the upside (e.g. US new home sales increased 16.6% over the month), leading to a bounce in the equity market late in the month.

In aggregate, European markets performed well over the month with the MSCI All Country Europe Index rising 4.7%.  European markets benefitted from the depreciation of the Euro and signs of a broader global recovery.  Alternatively, the British market remained fairly stagnant over the month as markets appeared to pause in anticipation of the looming Brexit referendum.

Performance of Asian markets was mixed as the Chinese share market weakened, while the Japanese stock market bounced strongly for the month.  The Shanghai Composite Index (China) ended the month down 0.7%, after falling sharply in early May in reaction to disappointing Chinese trade data renewing concerns over China’s future economic prospects.  On the other hand, the Nikkei Index (Japan) rose over the month, largely driven by positive sentiment in Japan’s economy and retail sales coming in ahead of expectation.

Australian and global bonds delivered comfortable returns over the month, quarter and financial year to date.